tag:blogger.com,1999:blog-29772979317313465242019-02-21T04:34:45.996-05:00Written DescriptionPatent &amp; IP blog, discussing recent news &amp; scholarship on patents, IP theory &amp; innovation.Lisa Larrimore Ouellettenoreply@blogger.comBlogger554125tag:blogger.com,1999:blog-2977297931731346524.post-64392260600655497222019-02-19T09:48:00.000-05:002019-02-19T09:48:07.064-05:00Using Insurance to Deter LawsuitsThe conventional wisdom (my anecdotal experience, anyway) is that the availability of insurance fuels lawsuits. People that otherwise might not sue would use litigation to access insurance funds. I'm sure there's a literature on this. But most insurance covers both defense and indemnity - that is, litigation costs and settlements. But what if the insurance covered the defense and not any settlement costs? Would that serve as a disincentive to bring suit? It surely would change the litigation dynamic.<br /><br />In <i>The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs</i>, Bernhard Ganglmair (University of Mannheim - Economics), Christian Helmers (Santa Clara - Economics), Brian J. Love (Santa Clara - Law) explore this question with respect to NPE patent litigation insurance. The draft is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3279130" target="_blank">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We do so by studying the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents’ owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. Assuming that a firm’s purchase of insurance is not observed by patent enforcers, we show that the mere availability of defense litigation insurance can have an effect on how often patent enforcers will assert their patents. Next, we empirically evaluate the insurance policy’s effect on the behavior of owners of insured patents by comparing their subsequent assertion of insured patents with their subsequent assertion of their other patents not included in the policy. We additionally compare the assertion of insured patents with patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that the introduction of this insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted, and our results are robust across different control groups. Our findings also have importance for ongoing debates on the need to reform the U.S. and European patent systems, and suggest that market-based mechanisms can deter so-called “patent trolling.” </blockquote>On reading the abstract, I was skeptical. After all, there are a bunch of reasons why more firms would defend against NPEs , why NPEs would be less likely to assert, and so forth. But the interesting dynamics of the patent litigation insurance market have me more convinced. Apparently, the insurance didn't cover any old lawsuit; instead, only specific patents were covered. So, the authors were able to look at the differences between firms asserting covered patents, firms that held both covered and non-covered patents, and firms that had no covered patents. Because each of these firms should be equally affected by background law changes, the differences should be limited to the role of insurance.<br /><br />And that's what they find, unsurprisingly. Assertions of insured patents went down as compared to uninsured patents, and those cases were less likely to settle -- even with the same plaintiff. My one concern about this finding is that patents targeted for insurance may have been weaker in the first place (hence the willingness to insure), and thus there is self-selection. The paper presents some data on the different patents in order to quell this concern, but if there is a methodological challenge, it is here.<br /><br />This is a longish paper for an empirical paper, in part because they develop a complex game theory model of the insurance purchasing, patent assertion, and patent defense. It is interesting and worth a read.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-12011179130147535842019-02-17T21:24:00.000-05:002019-02-18T09:16:04.368-05:00Foreign Meaning Matters: Brauneis and Moerland on Trademark's Doctrine of Foreign EquivalentsI was enjoying some siggi's® yogurt, and noticed, just below the trademark name siggi's®, an interesting piece of trivia: "skyr, that's Icelandic for thick yogurt!" You learn something new every day.<br /><br />Robert Brauneis and Anke Moerland's recent&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3273701">article</a>&nbsp;argues that it would not be good policy to allow the company that distributes&nbsp;siggi's<span style="font-family: &quot;times new roman&quot; , serif; font-size: 12pt;">&nbsp;</span><span style="font-family: &quot;times new roman&quot; , serif;"><span style="font-size: x-small;">®</span></span><span style="font-family: &quot;times new roman&quot; , serif; font-size: 12pt;">&nbsp;</span>yogurt to trademark the name SKYR for yogurt in the United States, even though most people in the United States do not currently know what the word "skyr" means. In short, they argue that when reviewing trademarks for purposes of distinctiveness, the U.S. Patent &amp; Trademark Office (USPTO) and the courts should translate foreign terms that are generic or merely descriptive in their home country, because allowing such marks would cause unexpected harms for competition.<br /><br />This is a fascinating paper that warrants serious thinking, and perhaps re-thinking, of how trademark law currently treats foreign terms.<br /><a name='more'></a><br />What's the harm, we might ask? If a US company wants to sell thick yogurt under the trademark SKYR, and virtually no one in the US knows what SKYR means, surely this should be classified as fanciful (inherently distinctive) and receive strong protection. &nbsp;At least this would be the answer provided by a typical "doctrine of foreign equivalents" analysis.<br /><br /><i>The Doctrine of Foreign Equivalents</i><br /><br />Trademark law's so-called doctrine of foreign equivalents holds, at least in the Federal Circuit's interpretation, that the meaning of a mark in a non-English language should be considered in assessing distinctiveness, but only "where the ordinary American consumer," including English-only speakers and people proficient in the non-English language present in America, "would stop and translate the mark into English[.]" &nbsp;<i>See&nbsp;<a href="https://scholar.google.com/scholar_case?case=13767240001087520782&amp;q=in+re+spirits+moscow+vodka&amp;hl=en&amp;as_sdt=6,36">In re Spirits Intern</a></i>., NV, 563 F. 3d 1347 (Fed. Cir. 2009). Obviously, there is usually going to be at least one native speaker in America who knows the meaning of the foreign term; but there has to be an "appreciable number" of native speaking consumers for their understanding to count. <i>Id</i>. (discussing the doctrine of foreign equivalents in the context of denying registration for geographically deceptively misdescriptive marks);&nbsp;<i>see also</i>&nbsp;<i><a href="https://scholar.google.com/scholar_case?case=1180612678706249144&amp;q=Palm+Bay+Imports,+Inc.+v.+Veuve+Cliquot+Ponsardin+Maison+Fondee+e&amp;hl=en&amp;as_sdt=6,36">Palm Bay Imports v. Veuve Clicquot Ponsardin</a></i>, 396 F. 3d 1369 (Fed. Cir. 2005).<br /><br />Therefore, so long as an ordinary American purchaser, including the <a href="https://en.wikipedia.org/wiki/Icelandic_Americans">40,000 or so Icelanders residing in the United States</a>, would not "ordinarily be expected to translate"&nbsp;skyr&nbsp;into "thick yogurt" there is no problem in granting a US yogurt company trademark rights to sell Skyr<span style="font-family: &quot;times new roman&quot; , serif;"><span style="font-size: x-small;">®&nbsp;</span></span>yogurt. <br /><br /><i>Brauneis and Moerland's Critique</i><br /><br />Not so fast, Professors Brauneis and Moerland argue. &nbsp;Allowing trademarking of such terms can in fact have significant anticompetitive effects by keeping companies from marketing products across borders that incorporate the most efficient words to describe them.<br /><br />As can be seen from the article's title,&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3273701"><i>"Monopolizing Matratzen in Malaga:&nbsp;</i><i>The Mistreatment of Distinctiveness of Foreign Terms in EU and US Trademark Law,"</i>&nbsp;</a>this article is admirably international, addressing not just US trademark law, but EU law, and cites a plethora of court opinions from across nations. This post, in contrast, is directed primarily at the US situation, and comes from a concededly US-centric perspective. <br /><br />The authors' central argument is that, in most instances, when someone tries to trademark a foreign term that is generic in the home language (or merely descriptive in the home language), the term should be translated from the foreign language into the domestic language in determining distinctiveness for purposes of protectability, <i>regardless of whether consumers in the domestic country where protection is sought understand the term's meaning. &nbsp;</i>(Descriptive marks are important too, since under&nbsp;<a href="https://www.law.cornell.edu/uscode/text/15/1052">15 U.S.C. § 1052(e)(1) and (f)</a>, they can only be protected with secondary meaning.)<br /><br />In making their argument, the authors divide potentially trademarked generic/descriptive foreign terms into three categories, which move from least to most controversial.<br /><br /><i>Category 1: Terms Where Domestic Consumers Know What the Foreign Term Means</i><br /><br />The first category of foreign terms they identify consists of foreign terms domestic consumers are likely to understand as the "common word in the foreign language" for a good or service, or as being merely "descriptive" of the good or service. (Brauneis and Moerland, at 3). <br /><br />This is an uncontroversial category. Take the term BANK. Clearly "bank" is a generic term for "bank" in the English language. But it's also basically a generic term for bank in every other language, since the Spanish, French, German, and even the Japanese have very similar terms for bank. Thus, no one in any of these countries should be allowed to trademark the term "bank" (alone) for a bank. It is generic across the board. The result, and the caveat, is that companies like CITIBANK can use, and even trademark, the term "bank" within more distinctive composite marks, without worrying about likely confusion with a prior mark. Likewise, common French terms like sorbet (sorbet) or baguette (baguette) are so well known in the US, and presumably in other countries, that they would be generic regardless.<br /><br />Courts in various countries have uniformly refused protection for generic or insufficiently distinctive terms when domestic consumers will quickly stop and translate. (3)<br /><br /><i>Category 2: "Proto-generic terms"</i><br /><br />This is my favorite category, and I completely agree with the authors' conclusions here that what they call "proto-generic" terms should be translated from their foreign language into the domestic language. <br /><br />The basic idea here is that sometimes "a foreign term may <i>not yet </i>be widely known in a particular market" because it has only recently been introduced into that market. For example, take SKYR. &nbsp;The Greek yogurt craze got going in only around 2005 thanks to&nbsp;<a href="https://en.wikipedia.org/wiki/Chobani">Chobani</a>, and the Icelandic yogurt follow-on is even newer. &nbsp;So (on concededly minimal evidence) I'd consider SKYR a “proto-generic” foreign term that will, in the next couple years, be recognizable to an appreciable number of US consumers if it's not already.* &nbsp;Indeed, the authors point to a German case to this effect: SKYR should be translated from Icelandic because German consumers don't yet know its meaning but soon will given the movement of the yogurt market. (6). <br /><br />* Incidentally,&nbsp;the company that distributes siggi's® operates under the trade name, The Icelandic Milk and Skyr Corporation,&nbsp;<a href="https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=108515476">a private company</a>&nbsp;based in New York. &nbsp;<br /><br />The upshot is that, for this category, courts are wrong when they decline to translate from the foreign term, because there will be anticompetitive effects in the not-too-distant future if only one company can market goods under a soon-to-be-generic term. This rule is especially appropriate given that trademark law tends to be forward-looking, assessing not just how the competitive landscape looks today, but how it will look in the future. Examples of this include where courts assess "<a href="https://scholar.google.com/scholar_case?case=2293827617926067028&amp;q=bridge+the+gap+trademark&amp;hl=en&amp;as_sdt=6,36">the likelihood that the prior owner will bridge the gap</a>" in the confusion analysis, and also <a href="https://www.law.cornell.edu/uscode/text/15/1064">the Lanham Act's</a>&nbsp;willingness to find that a term is abandoned once it&nbsp;<a href="https://scholar.google.com/scholar_case?case=17900735644634867359&amp;q=murphy+bed+trademark&amp;hl=en&amp;as_sdt=6,36">becomes generic, even if it was not born that way</a>.<br /><br />The authors identify a few opinions taking the erroneous view, but they note that many courts already get this category right. They cite several cases where courts held "proto-generic" foreign terms, such as OTOKOYAMA for Japanese dry sake, should be translated even though US consumers may not quite yet know the meaning. (5-6). &nbsp;This means a lot of these proto-generic foreign terms (or proto-descriptive terms lacking secondary meaning), will not be eligible.<br /><br />The Federal Circuit is a more interesting case. (The Federal Circuit's view is important since it has <a href="https://www.law.cornell.edu/uscode/text/15/1071">jurisdiction</a> over appeals from rejections by examiners and the Trademark Trial and Appeal Board.) To the extent the Federal Circuit's holding in <i>In re Spirits, </i>mentioned above, suggests that&nbsp;translating foreign terms is required in the distinctiveness analysis only if ordinary American consumers would <i>currently</i> stop and translate the mark into English, this would be wrong. That said, there is room for debate on precisely what the Federal Circuit held in <i>In re Spirits</i>. <br /><br />The issue in <i>In Re Spirits</i> was whether the term MOSKOVSKAYA, which means "of or from Moscow," was primarily "geographically deceptively misdescriptive" when used to sell vodka not made or sold in Moscow, under 15 U.S.C. § 1052(e)(3). The Federal Circuit affirmed the finding that an "appreciable number" of "ordinary American purchasers," including hundreds of thousands of Russian speakers in the US, would currently understand&nbsp;MOSKOVSKAYA&nbsp;to mean "of or from Moscow."&nbsp;<i>In re Spirits</i>, 563 F.3d. at 1351-1352. The court did not directly hold on the issue of whether <i>future</i> conceptions of a term should be considered. But the court did go on to find MOSKOVSKAYA for vodka that is not made or sold in Moscow was nonetheless a valid trademark, because the deception must also be a "material" factor in consumers' purchasing decisions, and this requires that the "appreciable number" of native speakers also be a "substantial portion of the intended audience."&nbsp;<i>Id</i>. at 1353 (citing<a href="https://scholar.google.com/scholar_case?case=14621225859603825589&amp;q=in+re+spirits+moscow+vodka&amp;hl=en&amp;as_sdt=6,36">&nbsp;<i>In re California Innovations, Inc</i>., 329 F.3d 1334, 1341 (Fed. Cir. 2003)</a>. &nbsp;In this case, the 706,000 Russian speakers only made up one-quarter of one percent of the whole US population in the market for vodka, &nbsp;which was not "substantial" enough.&nbsp;<i>Id</i>.<br /><br />In Professors Brauneis and Moerland's view, this holding effectively dispatches with the category of "proto-generic" foreign terms with respect to trademark distinctiveness analysis. If 706,000 people speak Russian in the US today and understand that MOSKOVSKAYA means "of or from Moscow," but this was not seen as sufficient, at least in the context of a § 1052(e)(3) rejection, this effectively says that the doctrine of foreign equivalents does <i>not</i> require a court to assess whether a foreign term whose meaning is known to only a few people now will nonetheless be known to many people in the near future. The authors note that at least "[o]ne scholar has argued that the reasoning of [<i>In re Spirits</i>] requires the distinctiveness of foreign words to be assessed solely on the basis of current domestic consumer understanding." (21) (citing Serge Krimnus, <i>The Doctrine of Foreign Equivalents at Death’s Door,</i> 12 N.C.J.L. &amp; Tech. 159, 161 (2010)). <br /><br />Another way to see this opinion, however, is that the Federal Circuit was only concerned about correcting how § 1052(e)(3) geographically deceptively misdescriptive rejections are performed, not about distinctiveness rules generally. So, for example, if someone applies to register SKYR (which is not a geographic term at all) for yogurt, this could still be rejected even under <i>In re Spirits </i>as "merely descriptive" without secondary meaning or "generic" for thick yogurt, despite that fact that only 40,000 people currently know the term, and 40,000 is a very small portion of the US yogurt market. The reason is that "materiality" is not at issue for ordinary, non-geographic "merely descriptive" or "primarily geographically descriptive" assessments under § 1052(e)(1) and § 1052(e)(2). So if the question is whether MOSKOVSKAYA is merely descriptive for a restaurant that sells Russian food, this might still be translated into Russian for purposes of assessing whether the term is "merely descriptive" or "primarily geographically descriptive" of the food offerings.<br /><br />In any case, needless to say, if the Federal Circuit gets the opportunity to speak on this precise point of law in the future, the authors would presumably urge the Federal Circuit to hold that the doctrine of foreign equivalents can be used in distinctiveness assessments, even if ordinary American consumers don't currently know the term's meaning, so long as it is "reasonable to assume that that might be the case in the future." (7) (quoting a Court of Justice of the European Union (CJEU) opinion taking this stance).<br /><br /><i>Category 3: No One in the Domestic Country Knows What the Term Means, And They Probably Never Will&nbsp;</i><br /><br />The final category is the most controversial. This category consists of foreign generic or descriptive terms that consumers do not understand now, <i>and that they will not likely understand in future. </i><br /><br />I am initially skeptical. What is the problem if a German company wants to sell violins in the US using a trademark consisting of the German term for violin, GEIGE, if no one in the US knows what it means? Surely US consumers will just see&nbsp;GEIGE&nbsp;as a highly distinctive mark (fanciful) that identifies a source, not a product, making it protectable under the <a href="https://www.law.cornell.edu/uscode/text/15/1127">Lanham Act</a>. &nbsp;The Federal Circuit would apparently not translate such a term. &nbsp;<i>See, e.g.,</i>&nbsp;<i><a href="https://scholar.google.com/scholar_case?case=1180612678706249144&amp;q=Palm+Bay+Imports,+Inc.+v.+Veuve+Cliquot+Ponsardin+Maison+Fondee+e&amp;hl=en&amp;as_sdt=6,36">Palm Bay Imports</a></i>, 396 F. 3d at 1377 ("When it is unlikely that an American buyer will translate the foreign mark and will take it as it is, then the doctrine of foreign equivalents will not be applied.").<br /><br />The authors argue, however, that there is, in fact, a big problem here. &nbsp;Their explanation is quite artful, and worth quoting in full. <br /><blockquote class="tr_bq">[T]he Spanish-language term for “mattress” is “colchón,” which, unlike the English word, has no relation or similarity to the German term “Matratze.” If Spanish consumers are unlikely ever to make the jump from “colchón” to “Matratze,” how could protecting “Matratzen” as a trademark in Spain have any anticompetitive effects?&nbsp;</blockquote><blockquote class="tr_bq">The answer, in one sentence,&nbsp;is that producers that have developed composite-mark branding incorporating the foreign term [in this case,&nbsp;German&nbsp;producers] will find it difficult or impossible to use that branding in the domestic market [here, in Spain, where trademark rights are sought], and that is a significant limitation on competition that will also affect domestic consumers.</blockquote>(Brauneis and Moerland, 8). The example they give of this problem is where a German company selling mattresses under the composite name <a href="https://www.matratzen-concord.de/">MATRATZEN CONCORD </a>wishes to sell into the Spanish market. The German company will be prevented from doing so due to the already-trademarked&nbsp;MATRATZE&nbsp;brand mattress. The Spanish trademark office was fine with it, because the term was highly distinctive to Spanish speaking consumers; but now German companies cannot sell into the US.<br /><br />Here is an example of the problem the authors have identified that should resonate with yogurt lovers. &nbsp;Imagine the USPTO permits a US company to obtain a trademark for the term SKYR for thick yogurt. Assume further that "ordinary US consumers" do not currently know what the term skyr means, and almost certainly never will, given the stark difference from the US term for "yogurt."<br /><br />But then imagine that an&nbsp;<i>Icelandic</i>&nbsp;company wants to sell yogurt under a&nbsp;composite&nbsp;mark&nbsp;that incorporates the Icelandic term for yogurt. The one that I think of&nbsp;is FYNDIO SKYR ("fyndio appears to mean "funny" in Icelandic). Surely, the Icelandic company should be able to call its product, loosely,&nbsp;Funny Yogurt® and be able to sell its Funny Yogurt® in the US too, without changing its name. After all, composite marks incorporating generic terms are exceptionally common. (8-9) ("Consider, for example, CITIBANK, MASTERCARD, NESCAFÉ...and of course MATRATZEN CONCORD.").<br /><br />But now that SKYR has been trademarked and branded in connection with a US yogurt company, American consumers will see&nbsp;FYNDIO SKYR&nbsp;<i>not</i>&nbsp;as meaning "funny yogurt," but as indicating a&nbsp;source. They will likely see an affiliation with the previously trademarked SKYR, or even believe the source of the two yogurts is the same.<br /><br />Indeed, as the authors compellingly observe, the fact that US consumers do not know the generic meaning for the foreign term potentially creates even more of a problem than if they did know it, because now the term is highly distinctive! Indeed, "from [America consumers'] point of view, it is a fanciful, newly-coined word[,]" and this "will only increase the likelihood of confusion between two brand names that incorporate the word, and will thus increase the likelihood that the new entrant faces ... anticompetitive burdens." (10).<br /><br />Note that the problem is not limited only to "composite marks" in the classic sense, like CITIBANK or SURGICENTER. Rather, the authors define "composite-mark branding" quite broadly to include "branding that incorporates two or more words," whether or not separated by a space, "in which <i>at least one</i> of the words is generic or descriptive in the language that the brand initially targets..." (8). This appears to sweep in marks that combine a generic term with a strong brand name, such as TOYOTA TORAKKU. (Torakku means "truck" in Japanese). True, the problem is likely to be more severe for composite marks that combine two generic terms than for marks that include an actual trademark term, since the presence of a strong brand name like Toyota will typically alleviate consumer confusion. But still, if a foreign generic term like&nbsp;TORAKKU&nbsp;becomes protected as a trademark in the United States, there could be anticompetitive problems in this scenario too, if Toyota tried to market a truck called something like TOYOTA TORAKKU.<br /><div><br /></div><div><i>Objections&nbsp;to Consider</i></div><br />I thought of several questions and objections to the authors' arguments, especially as respects their third category: generic foreign terms that no one in the US is ever going to stop and translate. Each was answered by the authors over email. I'll share each objection and response below.<br /><br />My first question is, isn't the descriptive fair use defense going to resolve the issue? As effectuated under Lanham Act <a href="https://www.law.cornell.edu/uscode/text/15/1115">§ 1115(b)(4)</a>, use of a term that is another firm’s trademark won’t be infringement if, in relevant part, "the use of the [term] charged to be an infringement is a use, otherwise than as a mark ...of a [term] which is descriptive of and used fairly and in good faith only to describe the goods or services of [defendant.]" Why won't this defense work in the CONCORD MATRATZEN case, where the German term for mattress is being used solely to describe the good sold, or in the FYNDIO SKYR case, where skyr is used only to describe the yogurt?<br /><br />I am somewhat unsatisfied with the authors' explanation in their article of why descriptive fair use is insufficient to deal with the problem. The authors argue a mere defense is insufficient, because there is a "clear difference between having an acknowledged freedom to use a term ... and having to seek such a freedom through a descriptive fair use [defense,]" which entails "the legal costs of being involved in proceedings in a foreign and possibly unknown legal system." (16). But I feel like that can largely be said any time we give protection to merely descriptive terms that develop secondary meaning, such as FISH FRI. <a href="https://scholar.google.com/scholar_case?case=12517611529639884408&amp;q=kp+make+up+trademark&amp;hl=en&amp;as_sdt=6,36">Descriptive fair use is a balancing act</a>. On the one hand, a term that comes to indicate a source to US consumers, like MATRATZEN, will get protection, and on the other hand, a German defendant wishing to use a composite mark like CONCORD MATRATZEN in good faith merely to describe their mattress-related product gets a defense. Why can't this balancing be done in all these cases?<br /><br />Professor Brauneis provided a pretty compelling response to this point via email, which I'll quote with permission, because it is exceptionally clear and has great images.<br /><blockquote class="tr_bq">Under US law, at least, I think descriptive fair use would be very difficult to invoke as a defense in cases in which the defendant was using the word as part of a composite mark. &nbsp;In those cases, the defendant will typically be presenting the descriptive or generic word with the same prominence, and in the same font, and so on, as the distinctive portion of the composite mark. &nbsp;For example, the CAFÉ in NESCAFÉ is presented no differently than the NES:&nbsp;</blockquote><blockquote class="tr_bq">&nbsp;<a href="http://1.bp.blogspot.com/-G7Q8HRknEyM/XGoVwUBjsiI/AAAAAAAAHLA/TGrZyuU0iHI2iqjE8poo0XWGQFXNVhZWQCK4BGAYYCw/s1600/image.png" imageanchor="1"><img border="0" src="https://1.bp.blogspot.com/-G7Q8HRknEyM/XGoVwUBjsiI/AAAAAAAAHLA/TGrZyuU0iHI2iqjE8poo0XWGQFXNVhZWQCK4BGAYYCw/s400/image.png" /></a></blockquote><blockquote class="tr_bq">and in the MATRATZEN CONCORD logo, the word MATRATZEN is in the same rounded-off font as CONCORD, and is obviously coordinated with it, scaled so that the two words are exactly the same length: &nbsp;</blockquote><blockquote class="tr_bq"><a href="http://4.bp.blogspot.com/-qKHMTcEDE4g/XGoV3sDpKTI/AAAAAAAAHLI/4ehrZC4BuCo3yNgNAeP8H6eWfgtSakeSACK4BGAYYCw/s1600/image.png" imageanchor="1"><img border="0" src="https://4.bp.blogspot.com/-qKHMTcEDE4g/XGoV3sDpKTI/AAAAAAAAHLI/4ehrZC4BuCo3yNgNAeP8H6eWfgtSakeSACK4BGAYYCw/s400/image.png" /></a>&nbsp;</blockquote><blockquote class="tr_bq">I think those uses would fare terribly in a descriptive fair use test. &nbsp;As the Second Circuit has formulated it in, e.g., <a href="https://scholar.google.com/scholar_case?case=8310380513222471794&amp;q=Kelly-Brown+v.+Winfrey,+717+F.3d+395+(2013),&amp;hl=en&amp;as_sdt=806"><i>Kelly-Brown v. Winfrey,</i> 717 F.3d 395 (2013)</a>, to mount a successful descriptive fair use defense, a defendant must prove that its use was made "(1) other than as a mark, (2) in a descriptive sense, and (3) in good faith." <i>Id</i>. at 308. As for what "use as a mark" means, the court asks "whether [the defendant was"] using the term 'as a symbol to attract public attention,'" or in an alternative formulation, whether the defendant was "attempting to build an association with consumers between the [term and the defendant]." &nbsp;<i>Id</i>.&nbsp;</blockquote><blockquote class="tr_bq">Suppose that other companies had managed to register CAFÉ and MATRATZEN as trademarks. &nbsp;If I were counseling Nescafé or Matratzen Concord, I would warn them that if they used the logos I've pasted in above, they would be running a very high risk of failing the descriptive fair use test, because a court would likely find that they are using the words "café" and "Matratzen" to attract public attention and to build consumer association between those words and the defendant as a source. &nbsp;First, the words are integrated with the distinctive part of the defendant's mark. Second, they are in a foreign language, and if the defendant's purpose was description, there are perfectly good domestic language words (in English, coffee and mattress) for the defendant to use. &nbsp;Thus, I'm not as optimistic as you are that descriptive fair use would save the day.</blockquote>My second objection is actually more of a question. I was uncertain after reading the article whether the authors are also concerned about <i>domestic</i> companies, or just about foreign companies. For example, what if Chobani, a New York-based company founded by a Greek individual, wants to sell&nbsp;Chobani Skyr®? Chobani means "<a href="http://tmsearch.uspto.gov/bin/showfield?f=doc&amp;state=4809:hp2rq7.2.1" style="color: #1155cc;">shepherd</a>" in Greek and is a conceptually as well as commercially strong mark. But this composite mark would present a problem for Chobani if SKYR has already been trademarked as a "fanciful" term by another yogurt company. Should Chobani have less of a right to use a generic Icelandic term than an Icelandic company?<br /><br />Here is Professor Brauneis' response, which I think is a crucial clarification to the scope of their argument.<br /><blockquote class="tr_bq">If the word is "proto-generic," such as (I would argue) SKYR is, then I think domestic companies have to have the same right. &nbsp;An employee from a US or a German dairy company might have travelled to Iceland, sampled the local product, and decided to introduce it in the US or Germany, and it shouldn't matter that the company involved is not based in Iceland.</blockquote>This means the authors think Chobani, the New York-based company, should be able to sell Chobani Skyr® in the US, just as much as an Icelandic company should be able to sell Findio&nbsp;Skyr® in the US. Their argument that we should avoid letting companies get trademarks on the generic foreign term is just as much protective of US companies as foreign ones. Note, however, that the descriptive fair use approach would arguably come out differently here, and be less protective of the US company than of the Icelandic one. If we let another company like siggis® trademark SKYR, Chobani would probably have a harder time arguing its use was merely to describe the product than an Icelandic company for whom SKYR actually means yogurt.<br /><br />This makes sense to me. For proto-generic terms, there is a very real concern that a term will become generic or merely descriptive in the near future even if it isn't now. Given my points earlier about trademark law as forward-looking, I think considering future impacts on competition is appropriate.<br /><br />Professor Brauneis concedes, however, that<br /><blockquote class="tr_bq">[i]t is a more difficult case if the foreign language term falls into our third category. &nbsp;Suppose that no one in the US speaks German, and one US firm has for some time been using the word GEIGE as a brand name for its violins. Since English has a perfectly fine word for violins, it is hypothetically unlikely that "geige" will ever gain currency as a term in the US. Now another US firm enters the violin market and wants to call itself GRANITE GEIGEN. Or perhaps a company from China, say, MengXiang, has never been in the German market, but now enters the US market and wants to sell its violins under the band name MENGXIANG GEIGEN. Should there be a different result than if an established German company, like GÖTTINGER GEIGENLADEN, wants to enter the US market?&nbsp;</blockquote><blockquote class="tr_bq">For now, I just have to say that I'm not sure about this one. Our rationale, of avoiding burdens on established foreign brands, does not apply when a domestic or a third-country company wants to market goods under a foreign term that is not and likely will not be understood by domestic consumers. &nbsp;And the existing domestic user of GEIGE for violins has an appealing story about how its existing goodwill is going to be destroyed. &nbsp;So I will let my co-author solve this :-), or at least see what she has to say.</blockquote>Professor Moerland got the last word, and suggested that, in principle, other entities, whether from the home market (US) or from Germany or from China, should be able to put products on the market that use a foreign descriptive or generic word, even though it is not from their own country and there is a perfectly acceptable, valid domestic alternative term. &nbsp;This discussion opens the door to points about international relations and the rights of foreign speakers to use their home language, which I'll leave the authors to tackle another day.<br /><br /><div style="text-align: center;">***</div><br />In any case, this was a fantastic article. It was exceptionally clear and engaging, introducing an intellectual mystery and running through the intricacies of an area of law that, in the authors' hands, becomes fascinating. I am especially grateful to the authors for providing such clear and candid responses to my questions, which advanced the discussion and improved the post. <br /><br /><br /><br /><div class="MsoNormal" style="background-color: white; line-height: normal; margin: 0in 0in 0.0001pt;"></div>Camilla Alexandra Hrdyhttps://plus.google.com/104611102227348345869noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-87853525266635659112019-02-12T09:22:00.000-05:002019-02-12T09:22:31.811-05:00IP and the Right to RepairI ran across an interesting article last week that I thought I would share. It's called <i>Intellectual Property Law and the Right to Repair</i>, by Leah Chan Grinvald (Suffolk Law) and Ofer Tur-Sinai (Ono Academic College). A draft is on<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3317623" target="_blank"> SSRN</a> and the abstract is here:<br /><blockquote class="tr_bq">In recent years, there has been a growing push in different U.S. states towards legislation that would provide consumers with a “right to repair” their products. Currently 18 states have pending legislation that would require product manufacturers to make available replacement parts and repair manuals. This grassroots movement has been triggered by a combination of related factors. One such factor is the ubiquity of microchips and software in an increasing number of consumer products, from smartphones to cars, which makes the repair of such products more complicated and dependent upon the availability of information supplied by the manufacturers. Another factor is the unscrupulous practices of large, multinational corporations designed to force consumers to repair their products only through their own offered services, and ultimately, to manipulate consumers into buying newer products instead of repairing them. These factors have rallied repair shops, e-recyclers, and other do-it-yourselfers to push forward, demanding a right to repair. </blockquote><blockquote class="tr_bq">Unfortunately, though, this legislation has stalled in many of the states. Manufacturers have been lobbying the legislatures to stop the enactment of the right to repair laws based on different concerns, including how these laws may impinge on their intellectual property rights. Indeed, a right to repair may not be easily reconcilable with the United States’ far-reaching intellectual property rights regime. For example, requiring manufacturers to release repair manuals could implicate a whole host of intellectual property laws, including trade secret. Similarly, employing measures undercutting a manufacturer's control of the market for replacement parts might conflict with patent exclusivity. Nonetheless, this Article’s thesis holds that intellectual property laws should not be used to inhibit the right to repair from being fully implemented. </blockquote><blockquote class="tr_bq">In support of this claim, this Article develops a theoretical framework that enables justifying the right to repair in a manner that is consistent with intellectual property protection. In short, the analysis demonstrates that a right to repair can be justified by the very same rationales that have been used traditionally to justify intellectual property rights. Based on this theoretical foundation, this Article then explores, for the first time, the various intellectual property rules and doctrines that may be implicated in the context of the current repair movement. As part of this overview, this Article identifies those areas where intellectual property rights could prevent repair laws from being fully realized, even if some of the states pass the legislation, and recommends certain reforms that are necessary to accommodate the need for a right to repair and enable it to take hold. </blockquote>I thought this was an interesting and provocative paper, even if I am skeptical of the central thesis. I should note that the first half of the paper or so makes the normative case, and the authors do a good job of laying out the case.<br /><br />Many of the topics are those you see in the news, like how laws that forbid breaking DRM stop others from repairing their stuff (which now all has a computer) or how patent law can make it difficult to make patented repair parts.<br /><br />The treatment of trade secrets, in particular, was a useful addition to the literature. As I <a href="https://papers.ssrn.com/abstract=1411579" target="_blank">wrote</a> on the economics of trade secret many years ago, my view is that trade secrecy doesn't serve as an independent driver of innovation because people will keep their information secret anyway. Thus, any innovation effects are secondary, in the sense that savings made from not having to protect secrets so carefully can be channeled to R&amp;D. But there was always a big caveat: this assumes that firms can "keep their information secret anyway," and that there's no forced disclosure rule.<br /><br />So, when this article's hypothesized right to repair extended to disclosure of manuals, schematics, and other information necessary to repair, it caught my eye. On the one hand, as someone who has been frustrated by lack of manuals and reverse engineered repair of certain things, I love it. On the other hand, I wonder how requiring disclosure of such information would change the incentive to dynamics. With respect to schematics, companies would probably continue to create them, but perhaps they might make a second, less detailed schematic. Or, maybe nothing would happen because that information is required anyway. But with respect to manuals, I wonder whether companies would lose the incentive to keep detailed records of customer service incidents if they could not profit from it. Keeping such records is costly, and if repairs are charged to customers, it might be better to reinvent the wheel every time than to pay to maintain an information system that others will use. I doubt it, though, as there is still value in having others repair your goods, and if people can repair their own, then the market becomes even more competitive.<br /><br />While the paper discusses the effect on the incentive to innovate with respect to other forms of IP, it does not do so for trade secrets.<br /><br />With respect to other IP, the paper seems to take two primary positions on the effect of immunizing IP infringement for repair. The first is that the right to repair can also promote the progress, and thus it should be considered as part of the entire system. While I agree with the premise from a utilitarian point of view, I was not terribly convinced that the right to repair would somehow create incentives for more development that would outweigh initial design IP rights. It might, of course, but there's not a lot of nuanced argument (or evidence) in either direction.<br /><br />The second position is that loosening IP rights will not weaken "core" incentives to develop the product in the first place, because manufacturers will still want to make the best/most innovative products possible. I think this argument is incomplete in two ways. Primarily, it assumes that manufacturers are monolithic. But the reality is that multiple companies design parts, and their incentive to do so (and frankly their ability to stay in business) may well depend on the ability to protect designs/copyright/etc. At the very least, it will affect pricing. For example, if a company charged for manuals, it may be because it had to pay a third party for each copy distributed. Knowing that such fees are not going to be paid, the original manual author will charge more up front, increasing the price of the product (indeed, the paper seems to assume very little effect on original prices to make up for lost repair revenue). Secondarily, downstream repairs may drive innovation in component parts. For example, how repairs are done might cause manufacturers to not improve parts for easy repair. The paper doesn't seem to grapple with this nuance.<br /><br />This was an interesting paper, and worth a read. It's a long article - the authors worked hard to cover a large number of bases, and it certainly made me think harder about the right to repair.<br />Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-41279147051590555032019-02-06T08:00:00.000-05:002019-02-06T08:00:01.264-05:00Using Antitrust to Fix Broken MarketsThe prescription drug market is a real mess, in my view. At the very least, it is complicated, and prices for drugs seem to be higher in the U.S. than elsewhere (though teasing that out is hard, since very few pay sticker price and insurance companies negotiate deals). But I don't know what the solution is, and I'm not convinced anyone else does, either. The recent article that triggers my thoughts on this is: <i>A Non-Coercive Approach to Product Hopping</i>, 33 Antitrust 102 (2018), by Michael Carrier (Rutgers) and Steve Shadowen (Hilliard &amp; Shadowen LLP). Their paper is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3310834" target="_blank">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">The antitrust analysis of product hopping is nuanced. The conduct, which consists of a drug company’s reformulation of its product and encouragement of doctors to switch prescriptions to the reformulated product, sits at the intersection of antitrust law, patent law, the Hatch-Waxman Act, and state substitution laws, and involves uniquely complicated markets with different buyers (insurance companies, patients) and decision-makers (physicians). </blockquote><blockquote class="tr_bq">In <i>Doryx, Namenda, and Coercion</i>, Jack E. Pace III and Kevin C. Adam applaud some courts’ use of a product-hopping analysis that finds liability only where there is an element of coercion. In this response, we explain that the unique characteristics of pharmaceutical markets render such a coercion-based approach misguided. We also show that excessively deferential analyses would give brand-name drug firms free rein to evade generic-promoting regulatory regimes. Finally, we offer a conservative framework for analyzing product hopping rooted in the economics and realities of the pharmaceutical industry. </blockquote>This very brief response essay does a good job of highlighting some of the difficult nuances associated with product hopping (something I'll describe more in a minute) in the prescription drug market. I don't necessarily agree with it - I actually disagree with the final proposal. I share this here because it prompted me to think more closely about an issue I had mostly ignored, and I respect Mike Carrier and think that he does about as good a job at presenting this particular viewpoint as anyone.<br /><br />Still, I'm troubled by the use of the blunt weapon of antitrust against product hopping, even as I have misgivings about other areas of this market. Product hopping occurs when a name brand (read, patented) drug is pulled from the market in favor of a "new and improved" product (that is also patented). The concern is that the removal of the old brand from the market just as generics are arriving will fail to trigger mandatory generic substitution rules, because doctors can't prescribe the old name brand. Instead, the fear is that doctors will only fill prescriptions for the new, improved (though the parties debate the improved point) drug, for which there is no generic to substitute. Further, they won't ever prescribe the generic once the name brand is off the market.<br /><br />Here's what gives me a bit of trouble about this. While I am a big fan of automatic generic substitution laws, I am skeptical that they should be used as innovation policy, to the point where the inability of a generic to take advantage of it creates an antitrust injury and <i>also</i> forces a company to make a product that it may or may not want to make for profit or other reasons. In other words, a system that requires a company to make a product so that other companies can sell a substitute product that sellers are required by law to sell is a broken system indeed.<br /><br />The question is, where is the system broken? Some will, no doubt say that it is the patent system and exclusivity. Surely that plays a role. But I'd like to point to three other points of market failure that drug makers point to. None of these are really new, but I'm taking the blogger's prerogative to talk about them.<br /><br />1. I think it is a huge assumption that doctors will only prescribe the new drug and won't prescribe the generic once it hits the market. The argument in the article above is that because doctors don't have to pay for it, they have no incentive to cost minimize. Which the incentive is certainly diminished in theory, this is not my experience with (many) doctors at all. I have had many doctors prescribe me (or my wife) "older" generic versions of drugs because they were cheaper. One funny thing is that often times those older versions were awful - like a drug my wife had to take as an awful tasting liquid because the pill version cost 3 or 4 times as much and wasn't covered by the (generally good) insurer, or a blood pressure medication I had to take because it was the standards--until I could show that I had a rare side effect.<br /><br />2. I think insurance companies can regulate much of this through formularies. If you make the new drug non-formulary (or even brand cost), people will migrate to the cheaper generic substitute, even if there is no prescription available. Even if doctors don't pay, insurers sure do, and they have every incentive to make sure that generic substitutes are used if the new drug is not really an improvement.<br /><br />3. I bristle a bit at the notion that generic companies must rely on substitution laws to get doctors to prescribe. I realize that's how it is done now, and while substitution laws are a good thing, there is nothing stopping generics from telling doctors why the new-fangled drug is no better than the one that was just removed from the market for the same money. We make every other industry do this. I suspect that litigation is cheaper than advertising, and while I am happy to give the industry a leg up, I am wary of giving it a pass on basic business requirements, and I am wary to taking something that's a regulatory windfall to generics (even if it is good for consumers) and making it an affirmative innovation policy. .<br /><br />4. Taking this last point further, from an innovation standpoint, is there any reason why generics can't innovate their own product hopping drug? Knowing that a deadline is coming, why can't they innovate (or license) their own extended relief version in addition? Indeed, I take an extended release version of a generic drug. It costs a fortune (before insurance), and the generic is benefiting from having created/licensed it. I suppose a more salient example is Mylan's Epi-Pen, which uses a protected delivery system for a generic drug. While most people are not thrilled with Mylan's pricing strategy, it illustrates the basic point I'm trying to make: generic manufacturers are not helpless victims of the system stacked against them, they are active, rent-seeking participants willing to exploit systematic flaws in their favor.<br /><br /><br />Finally, I will say that all of my arguments are empirically testable, as are the arguments on the other side. If folks can point to studies that have demonstrated actual physician, consumer, and insurer behavior in product hopping cases, I will be happy to post here and assess!Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-46302300967584214082019-02-03T10:44:00.000-05:002019-02-03T10:48:39.978-05:00AOC on Pharma & Public FundingCongresswoman Alexandria Ocasio-Cortez has already gotten Americans to start teaching each other about marginal taxation, and now she has started a dialog about the role of public funding in public sector research:<br /><blockquote class="twitter-tweet" data-lang="en"><div dir="ltr" lang="en">This week I conducted my first-ever line of questioning at an Oversight committee hearing, which focused on the skyrocketing costs of pharmaceuticals.<br /><br />Here’s what happened ⬇️ <a href="https://t.co/M6XuL61zXN">https://t.co/M6XuL61zXN</a></div>— Alexandria Ocasio-Cortez (@AOC) <a href="https://twitter.com/AOC/status/1091126335274143751?ref_src=twsrc%5Etfw">February 1, 2019</a></blockquote><blockquote class="twitter-tweet" data-lang="en"><div dir="ltr" lang="en">Big Pharma companies often say that drugs “need” to be expensive to fund research. What they don’t tell you is that they use *publicly-funded research* for expensive, privatized drugs.<br /><br />This week on Oversight, <a href="https://twitter.com/RoKhanna?ref_src=twsrc%5Etfw">@RoKhanna</a> and I exposed how this scheme works:<a href="https://t.co/ELbllU3Fxy">pic.twitter.com/ELbllU3Fxy</a></div>— Alexandria Ocasio-Cortez (@AOC) <a href="https://twitter.com/AOC/status/1091439100589211648?ref_src=twsrc%5Etfw">February 1, 2019</a></blockquote><script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script> In these short videos (which email subscribers to this blog need to click through to see), Ocasio-Cortez and Ro Khanna are seen asking questions during a Jan. 29 House Oversight and Reform Committee hearing, "<a href="https://taxnews.ey.com/news/2019-0265-house-oversight-and-reform-committee-hearing-examining-the-actions-of-drug-companies-in-raising-prescription-drug-prices">Examining the Actions of Drug Companies in Raising Prescription Drug Prices</a>." So far, @AOC's three tweets about this issue have generated over 7,000 comments, 58,000 retweets, and 190,000 likes.<br /><br />Privatization of publicly funded research through patents is one of my <a href="https://ssrn.com/abstract=2748375">main</a> <a href="https://ssrn.com/abstract=2919093">areas</a> of <a href="https://ssrn.com/abstract=3125784">research</a>, so I love to see it in the spotlight. There are enough concerns with the current system that the government <i>should</i> be paying attention. But as I explain below, condensing Ocasio-Cortez and Khanna's questions into a headline like "The Public, Not Pharma, Funds Drug Research" is misleading. Highlighting the role of public R&amp;D funding is important, but I hope this attention will spur more people to learn about how that public funding interacts with private funding, and why improving the drug development ecosystem involves a lot of difficult and uncertain policy questions. This post attempts to explain some key points that I hope will be part of this conversation.<br /><b></b><br /><a name='more'></a><b>1. Pharmaceutical development currently depends on both public <i>and</i> private funding, with public funding playing the largest role in basic sciences discoveries that indirectly lead to new drugs.</b><br /><br />According to the National Science Foundation, <a href="https://www.nsf.gov/statistics/2018/nsb20181/assets/1038/tables/tt04-03.pdf">out of the $495 billion spent on U.S. R&amp;D</a> in 2015, the federal government funded $121 billion—about one-quarter. Figuring out the portion of this R&amp;D that might be relevant to the pharmaceutical industry is difficult, but most of it would be funded by the National Institutes of Health (NIH), which has an annual budget around <a href="https://www.nih.gov/about-nih/what-we-do/budget">$39 billion</a>. The U.S. pharmaceutical industry performed over <a href="https://www.nsf.gov/statistics/2018/nsb20181/assets/1038/tables/tt04-09.pdf">$58 billion in R&amp;D in 2015</a>, with 99.8% of this funding coming from private industry.<br /><br />How significant are these different funding sources for new drug approvals? It depends on how you count. As Suzanne Scotchmer <a href="https://www.aeaweb.org/articles?id=10.1257/jep.5.1.29">has explained</a>, new discoveries build on old ones, and the pharmaceutical industry is no exception. If you consider all of the basic science and research tools that make new medical discoveries possible, every innovation can surely be traced to public R&amp;D. (For an accessible read on this topic, see <a href="https://marianamazzucato.com/entrepreneurial-state/">here</a>.) If you are interested in the more direct costs of developing a specific new drug, however, most of the price is still being paid by the private sector.<br /><br />To illustrate the distinction between direct and indirect influence: Bhaven Sampat and Frank Lichtenberg found that of drugs approved by the FDA from 1998 to 2005, <a href="https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2009.0917">9% of all drugs and 17% of "priority-review" drugs</a> (those reflecting "significant improvements") have at least one public-sector patent (i.e., a patent based on publicly funded R&amp;D), though they will typically have private-sector patents as well. But a much higher portion reflected more indirect influence of public R&amp;D: half of all drugs and two-thirds of priority-review drugs had a private-sector patent that <i>cited</i> a public-sector patent or publication. An even more expansive measure of indirect influence was used in the <a href="https://www.pnas.org/content/115/10/2329">2018 PNAS study</a> by researchers at Bentley University that Khanna is referring to when he asks about "the study that shows that between 2010 and 2016, of every drug, all 210 drugs that were approved by the FDA, were funded by the NIH or public money." As the study notes, "&gt;90% of this funding represents basic research related to the biological targets for drug action." This basic science is crucial, and expensive. But it does not mean that the private sector does not fund drug R&amp;D: later-stage research also carries an enormous pricetag.<br /><br />Assessing the impact of public R&amp;D is difficult, but some cutting-edge economic research is making progress on these questions. I recently <a href="https://ip.jotwell.com/payoff-public-rd-investments/">reviewed one such study</a>, which concludes that each $10 million in NIH funding in fact generates 2.7 additional private-sector patents, as opposed to being merely correlated with private-sector advances or crowding out private investment. This study helps justify the large federal expenditures on biomedical R&amp;D, but it does not address the relative importance of public and private sector R&amp;D investments.<br /><br /><b>2. Late-stage pharmaceutical development requires expensive clinical trials that are primarily financed by private firms, which depend on having sufficient patent protection to recoup development costs.</b><br /><br />Ocasio-Cortez and Khanna's comments sound similar to the "paying twice" critique of patents on publicly funded inventions: Why should U.S. taxpayers have to pay supracompetitive prices on patented products when they have already paid for the initial research? This critique seems most compelling for products that are actually covered by public-sector patents—e.g., a patent on a federally funded university invention that is exclusively licensed to a private firm.<br /><br />But the problem is that many inventions are very far from commercialized products. A university might patent a promising drug candidate based on studies in petri dishes or animals, but the FDA won't approve the drug until it has been through expensive clinical trials that demonstrate safety and efficacy in humans. Currently, most clinical trials are conducted by for-profit firms, and as <a href="https://ssrn.com/abstract=1127742">Ben Roin has explained</a>, pharmaceutical companies screen any drugs with insufficient patent protection out of their development pipelines. Daniel Hemel and I have questioned why there is not more government investment in clinical trials (see <a href="https://www.yalelawjournal.org/pdf/HemelOuellette_d8kwup4i.pdf">p. 570 here</a>), but given the current institutional structures for drug development, if publicly funded drug candidates couldn't be patented and exclusively licensed to private companies, many of them would never make it to market.<br /><br />This commercialization argument is the primary justification for allowing federally funded inventions to be patented and exclusively licensed, as is permitted under the Bayh–Dole Act of 1980. To be clear, however, this theory cannot justify the Act's present scope. As I have explained in <a href="http://cornelllawreview.org/files/2017/01/AyresOuellettefinal-1.pdf">work with Ian Ayres</a>, many federally funded inventions do not require exclusivity to be brought to market. Universities and other recipients of federal research funding should either limit exclusivity to just what is needed for commercialization or do more to justify greater patent rights—and perhaps pressure from Congress can help with this.<br /><br /><b>3. Some pharmaceuticals generate profits that far exceed their risk-adjusted cost of development, but this doesn't mean that pharmaceutical profits are uniformly too high—in some cases, expected profits seem too low.</b><br /><br />Many pharmaceutical prices seem difficult to justify from a public welfare perspective. A recent study of 99 cancer drugs approved by the FDA from 1989 to 2017 found a <a href="https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2720075">return of $14.50 per $1 of risk-adjusted R&amp;D spending</a>. Researchers at Yale estimated that Gilead's hepatitis C drugs brought in <a href="https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1124&amp;context=yjolt">forty times their development cost</a> in just the first 27 months. Specific instances of pharmaceutical profiteering have led to headlines and public outcry.<br /><br />But what we don't see are the drugs that are never developed because firms don't expect a sufficient return. These nonexistent drugs can't be counted, but a <a href="http://economics.mit.edu/files/10363">clever empirical study</a> by Eric Budish, Ben Roin, and Heidi Williams demonstrated R&amp;D investment distortion away from cancer drugs with shorter effective patent protection. Other empirical work has demonstrated the link between expected profits and R&amp;D in other ways: Medicare Part D <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3711884/">significantly increased pharmaceutical R&amp;D</a> for drugs targeting older patients; policies focused on increasing returns for developing <a href="https://academic.oup.com/qje/article-abstract/119/2/527/1894514">vaccines</a> and <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.677.7608&amp;rep=rep1&amp;type=pdf">orphan drugs</a> were effective; and introduction of a new drug in a given country seems to be <a href="https://www.mitpressjournals.org/doi/abs/10.1162/rest.89.1.88">delayed by price controls</a> but <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20141482">accelerated by strong patent rights</a>.<br /><br />In short, incentives matter. There are lots of ways in which market incentives aren't well aligned with social welfare, and many good arguments that drug development incentives should be less dependent on patent rights. Think, for example, of unpatentable interventions, or products with negative externalities, or innovations for populations with low ability to pay. But policymakers considering pharmaceutical price regulation should recognize that current incentives are not uniformly too high. As summarized by <a href="https://www.aeaweb.org/articles?id=10.1257/jel.20161327">Darius Lakdawalla</a>, "whether innovation is too high or too low is a first-order—perhaps <i>the</i> first-order—policy question in the economics of the pharmaceutical industry."<br /><br /><b>4. Requiring private firms that make use of public research to provide the public with a return on investment is more complicated than it sounds.</b><br /><br />Ocasio-Cortez seems particularly concerned that "the public is acting as an early investor, putting tons of money in the development of drugs that then become privatized, and then they receive no return on the investment that they have made." But it's not obvious that this kind of return on investment makes sense.<br /><br />First, it would be logistically and legally difficult to require some kind of return based on all the indirect influence discussed above, such as basic science findings that don't result in a patent. For publicly funded research that does result in a patent, the patenting institution (e.g., a university) does receive a return in the form of equity or royalties. But (1) this is a relatively small return, with many university technology transfer offices operating in the red (see p. 291-94 <a href="http://cornelllawreview.org/files/2017/01/AyresOuellettefinal-1.pdf">here</a>), and (2) Congress has directed patenting institutions to reinvest any net income in science research and education, so in this sense, the public is receiving a return—it is just not going back through the federal budget.<br /><br />Congress could require a more significant return on investment, such as requiring firms that profit from publicly supported research to repay those grants—and perhaps more—out of their profits. I have <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2966221">discussed</a> some arguments in favor of such a system, but I have also explained (in work with Daniel Hemel) that "if government-set rewards are targeted toward knowledge goods that the market underestimates, then reducing the market-generated reward for these knowledge goods may be counterproductive" (p. 579 <a href="https://www.yalelawjournal.org/pdf/HemelOuellette_d8kwup4i.pdf">here</a>).<br /><br /><b>5. There are a lot of open empirical questions about privatization of publicly funded research and its connection to pharmaceutical prices.</b><br /><br />There are open questions about <a href="https://www.aeaweb.org/articles?id=10.1257/jel.20161327">pharmaceutical economics</a>, and about <a href="https://ip.jotwell.com/do-patents-work/">patents</a> in general, and about how best to spend public R&amp;D money (though thinking <a href="https://works.bepress.com/josh_graffzivin/34/">longer term</a> is probably a good step!). And there are lots of questions about how these areas intersect under the Bayh–Dole Act, and whether that system could be improved.<br /><br />I am convening a small group of leading economists and legal scholars next month to try to reach consensus on what is currently known, what the important open questions are, and what policy recommendations we might have. But given the empirical uncertainty, it is particularly important that any policy changes be implemented in a way that <a href="http://www.virginialawreview.org/sites/virginialawreview.org/files/Ouellette_101-65.pdf">aids robust evaluation</a>. And I welcome dialog with scholars or policymakers interested in tackling these problems.Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-30272956179340932262019-01-29T14:20:00.000-05:002019-01-29T14:20:42.303-05:00It's Hard Out There for a CommonsI just finished reading a fascinating draft article about the Eco-Patent Commons, a commons where about 13 companies put in a little fewer than 100 patents that could be used by any third party. A commons differs from cross-licensing or other pools in a couple of important ways. First, the owner must still maintain the patent (OK, that's common to licensing, but different from the public domain). Second, <i>anyone</i>, not just members of the commons, can use the patents (which is common to the public domain, but different from licensing).<br /><br />The hope for the commons was that it would aid in diffusion of green patents, but it was not to be. The draft by Jorge Contreras (Utah Law), Bronwyn Hall (Berkeley Econ), and Christian Helmers (Santa Clara Econ) is called Green Technology Diffusion: A Post-Mortem Analysis of the Eco-Patent Commons. A draft is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3313407" target="_blank">SSRN</a>. Here is the abstract: <br /><blockquote class="tr_bq">We revisit the effect of the “Eco-Patent Commons” (EcoPC) on the diffusion of patented environmentally friendly technologies following its discontinuation in 2016, using both participant survey and data analytic evidence. Established in January 2008 by several large multinational companies, the not-for-profit initiative provided royalty-free access to 248 patents covering 94 “green” inventions. Hall and Helmers (2013) suggested that the patents pledged to the commons had the potential to encourage the diffusion of valuable environmentally friendly technologies. Our updated results now show that the commons did not increase the diffusion of pledged inventions, and that the EcoPC suffered from several structural and organizational issues. Our findings have implications for the effectiveness of patent commons in enabling the diffusion of patented technologies more broadly. </blockquote>The findings were pretty bleak. In short, the patents were cited less than a set of matching patents, and many of them were allowed to lapse (which implies lack of value). Their survey-type data also showed a lack of importance/diffusion.<br /><br />What I really love about this paper, though, is that there's an interpretation for everybody in it. For the "we need strong rights" group, this failure is evidence of the tragedy of the commons. If nobody has the right to fully profit on the inventions, then nobody will do so, and the commons will go fallow.<br /><br />But for the "we don't need strong rights" group, this failure is evidence that the supposedly important patents were weak, and that it was better to essentially make these public domain than to have after the fact lawsuits.<br /><br />For the "patents are useless" group, this failure shows that nobody reads patents anyway, and so they fail in their essential purpose: providing information as a quid pro quo for exclusivity.<br /><br />And for the middle ground folks, you have the conclusions in the study. Maybe some commons can work, but you have to be careful about how you set them up, and this one had procedural and substantive failings that doomed the patents to go unused.<br /><br />I don't know the answer, but I think cases studies like this are helpful for better understanding how patents do and do not disseminate information, as well as learning how to better structure patent pools.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-46712936979032426932019-01-22T09:49:00.000-05:002019-01-22T09:49:58.876-05:00The Name's the ThingMuch to my chagrin, my kids like to waste their time not just playing video games, but also watching videos of others playing video games. This is a big business. Apparently the top Fortnite streamer made some $10 million last year. Whaaaaat? But these services aren't interchangeable. The person doing the streaming is important to the viewer.<br /><br />But what if two streamers have the same name, say Fred, or Joan, or...Kardashian. Should we allow someone to lock others with the same name out? Under what circumstances? And what if the service is simply being famous-for endorsements, etc.<br /><br />Bill McGeveran (Minnesota) has posted an article that discusses these issues called <i>Selfmarks</i>, now published in the Houston Law Review. It is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3305255" target="_blank">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">“Selfmarks” are branded personal identifiers that can be protected as trademarks. From Kim Kardashian West to Beyoncé’s daughter, attempts to propertize persona through trademark protection are on the rise. But should they be? The holder of a selfmark may use it to send a signal about products, just like the routine types of brand extension, cross-branding, and merchandising arrangements fully embraced under modern trademark law. Yet traditional trademark doctrine has adjusted to selfmarks slowly and unevenly. Instead, the law has evolved to protect selfmarks through mechanisms other than trademarks. In an age where brands have personalities and people nurture their individual brands, it is time to ask what principled reasons we have not to protect the individual persona as a trademark. </blockquote>I liked this article a lot--especially its straightforward approach. It looks at these marks through the lens of trademark law (as it should), considering use (that is what goods and services) and distinctiveness. In doing so, it provides several useful hypotheticals that illustrate the problems of using names as trademarks. The paper also considers Lanham Act sections that specifically deal with names.<br /><br />Finally, the paper discusses a couple of concerns. First is endorsement confusion. As the "service" of a celebrity becomes endorsement, then everything the celebrity does is potentially an endorsement, even though that may not be the intention. McGeveran discusses this concern. Second is the ever-present speech concern. If names are protected as marks, then it is harder to use that name in speech.<br /><br />This article is a really good primer on names as marks. I think a good extension for the next one would be a topic that a student of mine wrote about last year: joint marks. That is, when multiple people have the same name - together even - then the mark can cease being distinctive of their individual goods. My student did a great case study of the Kardashian marks, showing that several of them may well be invalid, but I think this could be extended to a longer theoretical piece if it hasn't been done already.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-58211859075034029592019-01-15T10:42:00.001-05:002019-01-15T10:42:42.762-05:00The Copyright Law of InterfacesWinter break has ended and so, too, has my brief blogging break. I've blogged <a href="https://writtendescription.blogspot.com/2018/03/oracle-v-google-again-unicorn-of-fair.html" target="_blank">before</a> (<a href="https://writtendescription.blogspot.com/2016/05/thoughts-on-googles-fair-use-win-in.html" target="_blank">many</a> <a href="http://madisonian.net/2014/05/09/oracle-v-google-reversed-framing-matters/" target="_blank">times</a>) about the ongoing Oracle v. Google case. My opinion has been and continues to be that nobody is getting the law exactly right here, to the point where I may draft my own amicus brief supporting grant of certiorari. But to the extent I do agree with one of the sides, it is the side that says API (Application Programming Interfaces) developers must be allowed to reuse the command and parameter structure of the original API without infringing copyright. My disagreement is merely with the way you get there. Some believe that API's are not copyrightable at all. I've blogged before that I'm not so sure about this. Some believe that this should be fair use. I think this is probably true but the factors don't cleanly line up. My view is that this should be handled on the infringement side: that API's, even if copyrightable, are not infringing when used in a particular way (that is, they are filtered out of an infringement analysis). It's the same result, but (for me, at least) much cleaner theoretically and doctrinally.<br /><br />But make no mistake, this sort of reuse is critically important, as Charles Duan (R Street Institute) points out in his latest draft: <i>Internet of Infringing Things: The Effect of Computer Interface Copyrights on Technology Standards </i>(forthcoming in Rutgers Computer and Technology Law Journal). The draft is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3303618" target="_blank">SSRN</a> and an abstract is here:<br /><blockquote class="tr_bq">This article aims to explain how copyright in computer interfaces implicates the operation of common technologies. An interface, as used in industry and in this article, is a means by which a computer system communicates with other entities, either human programmers or other computers, to transmit information and receive instructions. Accordingly, if it is copyright infringement to implement an interface (a technical term referring to using the interface in its expected manner), then common technologies such as Wi-Fi, web pages, email, USB, and digital TV all infringe copyright. </blockquote><blockquote class="tr_bq">By reviewing the intellectual property practices of the standard-setting organizations that devise and promulgate standards for these and other communications technologies, the article demonstrates that, at least in the eyes of standard-setting organizations and by extension in the eyes of technology industry members, implementation of computer interfaces is not an infringement of copyright. It concludes that courts should act consistent with these industry expectations rather than upending those expectations and leaving the copyright infringement status of all sorts of modern technologies in limbo.</blockquote>&nbsp;As noted, I agree with the end result, so any critique here should be taken as one of the paper, and not of the final position. I think Duan does a very nice job of explaining what an interface is: namely, the set of commands that third-party programmers send to a server/system to make it operate. There is value in standardization of these interfaces - it allows people to write one program that will work with multiple systems. Duan uses two good examples. The first is HTML/CSS programming, which allows people to write a single web document and have it run in any browser and/or server that supports the same language. The second is SMTP, which allows email clients to communicate with any email server. The internet was built on these sorts of interfaces, called RFCs.<br /><br />Duan then does a nice job of showing the creativity that goes into selecting the commands - as with Java, there were choices (though limited) to make about each command. Because the set of functions is limited, number of ways to describe the function is limited, but there are some choices to be made. The article then shows how those commands are grouped together in functional ways.<br /><br />Finally, Duan nicely shows how many important standards are out there that follow this same pattern, and shows how standards organizations handle any copyright--they don't. In short, allowing contributors to claim copyright ownership would destroy systems, because there is no requirement that contributors allow others to use the interface. Duan's concern is that if individual authors owned the IP in their interface contributions to standards (a potential extension of Oracle v. Google) then holdup might occur that harms adoption. This, of course, is hotly debated, as it is in the patent area.<br /><br />I think it's a really interesting and well-written paper. Before I get to a couple critiques, I should note that Duan is focused more on how the current legal8 rulings might affect standards than critiquing the rulings themselves (as I have done here). Thus, my comments here may simply not have been on his radar.<br /><br />My primary thought reading this is that the paper doesn't deal with the declaring code. That is, in order to implement the Java commands, Google created short code blocks that defined the functions, the parameters, etc.&nbsp; Here is an example from the <a href="https://www.eff.org/files/alsup_api_ruling.pdf" target="_blank">original</a> district court opinion:<br /><br /><blockquote class="tr_bq">package java.lang;<br />java.lang public<br />class Math { <br />class Math public static int max (int x, int y) { </blockquote><br />This code is what the jury found to be copied (though presumably Google wrote it in some other language). But the standards interfaces don't provide any code, per se. They only provide explanations. Here is an example definition from the <a href="https://www.rfc-editor.org/rfc/rfc5321.txt" target="_blank">RFC</a> for the SMTP protocol discussed in the paper: <br /><blockquote class="tr_bq"><pre>mail = "MAIL FROM:" Reverse-path</pre></blockquote>In other words, standards will define the commands that must be sent, but there's not a language based implementation (e.g. public, static, integer, etc.). As with the sample line above. Most say: send x command to do y. And people writing software are on their own to figure out how to do that. And you can bet the implementing code looks very similar, but there's something different about how it is specified at the outset (a full header declaration v. a looser description). So, the questions this raises are a) does this make standards less likely to infringe, even under the Federal Circuit's rules (I think yes), and b) does this change how we think about declaring code? (I think no, because the code is still minimal and functional, but Oracle presumably disagrees).<br /><br />Secondarily, I don't think the article considers the differences between Oracle's position (now - it changed, which is one of the problems) and that of a contribution to standards. Contribution to a standard is made so that others will adopt it, presumably because it gives you a competitive advantage of some sort. By not being part of the standard, you risk having a fragmented (smaller) set of users. But if Oracle doesn't want others adopting Java language and would rather be limited, then that makes the analogy inapt. If Google had known this was not allowed and gone another way, it may well be that Java is dead today (figure that in to damages calculations). But a fear of companies submitting to standards and then taking it back is to me different in kind from companies that never want to be part of the standard. (Of course, as noted above, there is some dispute about this, as Sun apparently did act as if they wanted this language to be an open standard).<br /><br />A final point: two sentences in the article caught my eye, because they support my view of the world (confirmation bias, of course). When speaking of standard setting organization policies, Duan writes: "To the extent that a copyright license is sought from contributors to standards, the license is solely directed to distributing the text of the standard. This suggests that copyright is simply not an issue with regard to implementing interfaces." Roughly interpreted, this means that these organizations think that maybe you <i>can</i> copyright your API, but that copyright only applies to slavish copying of the entire textual document. But when it comes to reuse of the technical requirements of the standard, we filter out the functionality and allow the reuse. This has always been my position, but nobody has argued it in this case.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-5986239524016747172019-01-14T05:40:00.001-05:002019-01-15T15:04:52.604-05:00Bruno Latour, Mario Biagioli, and the Rhetoric of "Balance" in IP Law (and Climate Change)I just read Jennifer Szalai's fascinating&nbsp;<a href="https://www.nytimes.com/2019/01/09/books/review-misinformation-age-cailin-oconnor-james-owen-weatherall-down-to-earth-bruno-latour.html">review</a>&nbsp;in the&nbsp;<i>New York Times&nbsp;</i>of the French anthropologist and philosopher Bruno Latour's <a href="https://www.amazon.com/Down-Earth-Politics-Climatic-Regime/dp/1509530576">new book</a>&nbsp;on politics and the debate over climate change<i>.</i>&nbsp; As I recall from my history of science days, the whole point of Latour's body of work was that "facts," in science, are not really facts. They are the social constructions of scientists who are real people with childhoods, values, and careers, whose conclusions cannot be divorced from the environment in which they were produced. "[T]he essential point," Latour <a href="http://www.bruno-latour.fr/sites/default/files/88-SCIENCE-LAW-GB.pdf">wrote</a>,<br /><blockquote class="tr_bq">is that the facts, contrary to the old adage, obviously do not 'speak for themselves’: to claim that they do would be to overlook scientists, their controversies, their laboratories, their instruments, their articles, and their hesitant, interrupted, and occasionally deictic speech...</blockquote>Thus, we might think Latour would be sympathetic to so-called climate change deniers, who greet with skepticism the science community's conclusions about humans' impact on global warming. As Szalai puts it in her review, Latour "has spent a career studying how knowledge is socially constructed." So, surely, "[the] kind of postmodernism" that lies behind the "conservative tradition" of "performing a skepticism so extreme that it makes the ancient Greek skeptics look like babes in the woods[]" would appeal to him. <br /><br />But it's not so, Szalai writes. To the contrary, Latour sees "[s]uch pretensions to reality-creating grandeur" as "amount[ing] to little more than a vulgar, self-defeating cynicism." Perhaps even Bruno Latour, in the end, was a "realist"&nbsp;<span style="font-family: &quot;times new roman&quot; , serif; font-size: 12pt;">—</span>&nbsp;at least when it comes to some things.<br /><br />Revisiting Latour's skepticism of facts, I can't help but wonder (although I think I know) what Latour would say about patents. This brings me to a gem that I was lucky to get ahold of over break: an article by esteemed historian of science and expert on the Scientific Revolution, and now a law professor at the University of California Davis School of Law,&nbsp;<a href="https://law.ucdavis.edu/faculty/biagioli/">Mario Biagioli</a>. Adding another layer of irony, everything in this post will be colored by fact that Mairo is a long-time mentor and supervised my undergraduate thesis in the Department of History of Science at Harvard. His paper, <i><a href="https://innovation.ucdavis.edu/people/publications/Biagioli%202006%20Patent%20Republic.pdf">Patent Republic</a></i>, tracing the development of the patent system from the Venetian Republic to early America, inspired me to study IP.<br /><br /><a name='more'></a>We might initially assume Biagioli's article, entitled&nbsp;<i><a href="https://journals.sagepub.com/doi/10.1177/0073275318797787">Weighing intellectual property: can we balance the costs and benefits of patenting?</a>,</i>&nbsp;is another article addressing the costs and benefits of IP, and bemoaning the deficits in the empirical evidence. Biagioli's conclusion that "we are unable to measure the benefits that IP has for inventors or the costs it has for the public" might remind readers, for example, of Mark Lemley's now-<a href="https://scholar.google.com/scholar_case?case=13565328366614267121&amp;q=recognition+in+a+niche+market+or++15+U.S.C.+%C2%A7+1125(c)(2)(A).%E2%80%9D&amp;hl=en&amp;as_sdt=6,33">famous</a>&nbsp;critique of what Lemley calls "<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2587297">faith-based IP</a>." Lemley argued&nbsp;provocatively that despite, or because of, inconclusive evidence on the utilitarian benefits of IP, such as promoting innovation and disclosure of technical information, "more and more scholars have begun to retreat from evidence ... justifying IP as a moral end in itself rather than on the basis of how it affects the world."<br /><br />Many people <a href="https://jeremysheff.com/2015/04/02/faith-based-vs-value-based-ip-on-the-lemley-merges-debate/">disputed</a> Lemley's conclusions and characterizations of other IP scholars' work. Yet the term "faith-based IP" may still strike home to many, because the reality remains that the empirical evidence leaves plenty of uncertainty on both sides. (Incidentally, one of the most concise summaries I've ever read of the inconclusive empirical evidence regarding the costs and benefits of patents appears on pages 75-87 of Lisa Larrimore Ouellete's article,&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2294774">Patent Experimentalism</a></i>.)<br /><br />To some degree, Biagioli's article has a lot in common with these prior articles, expressing skepticism about whether patents and IP, generally, bring benefits that are greater than the costs, and about how society justifies the institution in light of existing measurements. But whereas Lemley confronted the topic as a veteran IP insider with nearly two hundred articles and countless staked-out positions relating to a huge diversity of IP topics, as well as a consistent prescription (weaker IP rights; more competition), Biagioli views the debate from a distance. His article is likely written for non-lawyers. It was published in&nbsp;<i>History of Science</i>&nbsp;in a Special Issue entitled "Technologies of the Law/Law as a Technology." To riff on Szalai's description of Latour's book, Biagioli's is "a wilder, more playful [article]" than<i>&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2587297">Faith-Based Intellectual Property</a></i>.<br /><br />For sure, like Lemley, Biagioli reviews certain empirical studies on the uncertain benefits of patents, and includes all the usual suspects:<br /><ul><li>Fritz Machlup’s observation that “[i]f we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. ...";&nbsp;</li><li>Edwin Mansfield's conclusion that “[the patent system's] effects [on the rate of innovation] are very small in most of the industry we studied";&nbsp;</li><li>Adam Jaffe's assessment that that "it would be surprising if major changes in the patent system did not affect the innovation process[,]" and Jaffe's recognition of the potential viability of the "alternative view" that "patents are not central to appropriating the returns to R&amp;D in most industries[]"; and</li><li>the Berkeley Patent Survey's finding, based on 1,332 responding high-tech entrepreneurs, that "on average patents offer just above a 'slight incentive' to engage in invention, R&amp;D, and commercialization, and between 'slight' and 'no incentive at all' to create internal tools and processes."&nbsp;</li></ul>(Biagioli, 7-11) (quoting the results of these studies).<br /><br />On the flip side, Biagioli also has some critical things to say about work&nbsp;(presumably including some of Lemley's) measuring the <i>costs</i> of patents. In short,&nbsp;Biagioli&nbsp;writes, there are not very many studies measuring the costs of patents. The studies that do exist tend to have short time-horizons. And they tend to focus only on costs like hold-ups and foregone innovation opportunities (and, I'd add, costs of administration and enforcement of patents). (13). Meanwhile, the studies ignore, presumably because they cannot realistically measure, indirect costs like "loss of health (or life) that may have resulted from" "the higher financial costs to patients" of life-saving drugs and diagnostic tests, such as Myriad Genetics' breast and ovarian cancer tests. (12-14).<br /><br />In the end, Biagioli appears, like Fritz Machlup, to be unimpressed. (14) ("Returning to the key question of what these studies tell us, the short answer is: not much. Their results have been as inconclusive as those of the studies of the social benefits of patents, despite a few outliers.").<br /><br />But the ultimate point of Biagioli's article, I think, is not to review the empirics and confirm that, yes, they are often pretty inconclusive. Nor is it to condemn IP professors<span style="font-family: &quot;times new roman&quot; , serif; font-size: 12pt;">—</span>who, after all, are hired to teach IP law to tuition-paying law students and IP lawyers<span style="font-family: &quot;times new roman&quot; , serif; font-size: 12pt;">—</span>for ignoring the inconsistencies underlying the justifications for their field. Rather, it is to highlight the irony of the discourse in IP scholarship around "balance." <br /><br />"The discourse of balance," Biagioli begins, "is a common denominator shared by both supporters and critics of intellectual property. The former see balance as a way to justify IP protection and differentiate it from monopoly, and the latter see it as a door through which issues of social justice and public responsibility (especially responsibility toward future users and producers) can be brought into patent law." (5).<br /><br />I am reminded of how IP proponents and IP opponents use the&nbsp;<a href="https://en.wikipedia.org/wiki/Lockean_proviso">Lockean proviso</a>. Does Locke's maxim that people develop "natural rights" in the fruits of their labor, but only so long as there is "enough, and as good, left in common for others,” provide a reason to weaken&nbsp;intellectual property rights, or counterintuitively help to <i>justify</i> them? While some might think only the former, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924567">Robert Merges</a> would likely suggest the proviso is representative of a "midlevel principle" in favor of "proportionality" in calibrating IP rights<span style="font-family: &quot;times new roman&quot; , serif; font-size: 16px;">—</span>i.e., the requirement that "the grant or reward be proportional to effort or contribution." Professor Merges' Proportionality Principle can help to justify continued protection of intellectual property rights<i>&nbsp;so long as&nbsp;the commitment to proportionality is upheld.</i><br /><br />To give another classic example, Biagioli points to William Nordhaus' article on how to calculate the optimal patent term. (Biagioli, 4). In <a href="https://mitpress.mit.edu/books/invention-growth-and-welfare"><i>Invention, Growth and Welfare </i>(1969)</a>, Nordhaus conceptualized patents as a "trade-off" between the goal of more innovation, and the goal of free competition and avoiding monopolies. What Nordhaus sought, literally, was the proper <i>balance</i> between longer patents, on the one hand, and higher prices and more deadweight loss, on the other.<br />&nbsp; &nbsp; &nbsp; <br />The ostensible message of such works is that, if we can just calibrate IP rights so as to optimize costs and benefits, all will be well, or at least "well enough" to justify the field. This is the refrain of much IP scholarship, including, I am sure, much of my own and likely many readers'. (I just finished a trade secrets article with a section called "A Difficult Balancing Act" or something like that.)<br /><br />Biagioli asserts that, in light of the empirical uncertainty about <i>both</i> the benefits <i>and</i> the costs of patents, these allusions to finding the proper "balance" may be performing a different function than is asserted. "[I]f the figure of the balance is invoked so widely and so often,"&nbsp;Biagioli&nbsp;writes, "it is not because of its ability to actually balance what it is supposed to balance, but rather due to the fact that it conveys the <i>impression</i> that it is <i>possible</i> to perform the kind of accounting of social costs and benefits necessary to justify the existence of IP." (6) (emphases in original). <br /><br />Biagioli's insights about IP professors' debating the virtues and vices of IP rights brings us back to Latour and his insights on debates over climate change.*&nbsp;After reading the aforementioned review of Latour's new book, which in turn prompted me to write this blog post, I couldn't help myself, and checked ExxonMobile's statement on "<a href="https://corporate.exxonmobil.com/en/community/sustainability-report/managing-risks-of-climate-change/engaging-on-climate-change-policy">[m]anaging the risks on climate change</a>." &nbsp;It reads:<br /><blockquote class="tr_bq">ExxonMobil believes the long-term objective of effective policy should be to reduce the risks of climate change at minimum societal cost, in balance with other priorities such as economic growth, education, poverty reduction, health, security and affordable energy.</blockquote>Biagioli's work, like Latour's, leaves one to ponder. Is Exxon referring to the need for "balance" because of its ability to actually balance what it is supposed to balance, or because it conveys the&nbsp;<i>impression</i>&nbsp;that it is&nbsp;<i>possible</i>&nbsp;to perform the kind of accounting of social costs and benefits necessary to perform this balancing? (Biagioli, 6). <br /><br />&nbsp;*Incidentally,&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2193133.">Lisa&nbsp;Ouellette</a>&nbsp;has also written about science literacy and the public's views on climate change, as well as an <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2333216">IP Theory essay</a> linking cultural cognition to intellectual property.Camilla Alexandra Hrdyhttps://plus.google.com/104611102227348345869noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-73004351591014579102019-01-02T13:21:00.003-05:002019-01-02T18:18:06.364-05:00Erin McGuire: Can Equity Crowdfunding Close the Gender Gap in Startup Finance?As I have <a href="https://writtendescription.blogspot.com/2018/11/how-will-uspto-study-gaps-in-patenting.html">previously explained</a>, there is growing interest in gender and racial gaps in patenting from both scholars and Congress—which charged the USPTO with studying these gaps. But I don't think it makes sense to study these inequalities in isolation: patent law is embedded in a <a href="http://texaslawreview.org/wp-content/uploads/2015/08/HemelOuellette.pdf">larger innovation ecosystem</a>, and patents' benefit at providing a strong ex post reward for success comes at the cost of needing to attract funding to cover R&amp;D expenses until patent profits become available. It may be difficult to address the patenting gap without also addressing inequalities in capital markets.<br /><br />In particular, there is a large and well-documented gender gap in the market for early-stage capital. For example, <a href="https://hbr.org/2017/06/male-and-female-entrepreneurs-get-asked-different-questions-by-vcs-and-it-affects-how-much-funding-they-get">this <i>Harvard Business Review</i> article</a> notes that women receive 2% of venture funding despite owning 38% of U.S. businesses, and that even as the percentage of female venture capitalists has crept up from 3% in 2014 to 7% in 2017, the funding gap only widened. Part of the explanation—explored in the fascinating <a href="https://journals.aom.org/doi/abs/10.5465/amj.2016.1215">study</a> summarized in the <i>HRB</i> piece—may be that both male and female VCs ask different kinds of questions to male and female entrepreneurs: in actual Q&amp;A sessions, VCs tended to ask men questions about the potential for gains and women about the potential for loses, with significant impacts on funding decisions.<br /><br />Economist <a href="https://sites.google.com/view/erinlmcguire/home">Erin McGuire</a>, currently an NBER postdoc, has an interesting working paper on one partial solution to this problem: <i><a href="https://drive.google.com/file/d/1NFj-nfhKxTfcT7yDrPhR_is8ykYMcq4r/view">Can Equity Crowdfunding Close the Gender Gap in Startup Finance?</a></i> Non-equity crowdfunding through sites like KickStarter and Indiegogo have grown in popularity in the past two decades; <i>equity</i> crowdfunding differs in that funders receive shares in the company in exchange for their investments. The average equity crowdfunding investment is $810—over ten times the average investment on Kickstarter. Equity crowdfunding was illegal in the United States before the JOBS Act of 2012, which allowed equity crowdfunding by accredited investors in September 2013. McGuire hypothesized that the introduction of this financing channel—with a more gender-diverse pool of potential investors—as an alternative to professional network connections would have a greater benefit for female entrepreneurs.<br /><br /><a name='more'></a>McGuire used Crunchbase to obtain financing information for U.S. startups operating during each month between September 2011 and September 2015, and she used Genderize.io determine the founders' likely gender (restricting to names over 80% likely to be either male or female). She dropped firms with a funding round over $10 million, which are unlikely to be in the early growth stage. Using a difference-in-differences model, she concluded that firms founded by women raise about 36% less external capital than those founded by men, and that the legalization of equity crowdfunding decreased this gap by 20 percentage points. The estimated gaps did not vary substantially when different probability thresholds were used to identify founder names as female.<br /><br />As potential mechanisms to explain this effect, McGuire points to the higher proportion of women among equity crowdfunding angel investors than VCs (which benefits female entrepreneurs if women are more likely to invest in other women), angel investors' lower expected returns and thus perhaps greater willingness to invest in industries like clothing and apparel with a higher proportion of female founders, and the ability of female entrepreneurs to access investors outside their professional networks (which tend to be smaller for women). McGuire also shows that the JOBS Act does not seem to have increased the entry rate of female firms relative to male firms; rather, the main effect was to make it easier for female entrepreneurs to access external capital.<br /><br />It's an intriguing result, and I look forward to more work on disentangling these different mechanisms. And perhaps identifying and correcting some imperfections in capital markets will also help address inequalities in the patent system.Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-42231681249270666412018-12-19T08:00:00.000-05:002018-12-19T08:00:03.151-05:00All about IP & Price DiscriminationIt's a grading/break week, so just a short post. A recent article that I enjoyed a lot, but that hasn't found much love on SSRN is <i>Price Discrimination &amp; Intellectual Property</i>, by Ben Depoorter (Hastings) and Mike Meurer (Boston University). The <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3271247" target="_blank">paper</a> has the following abstract:<br /><blockquote class="tr_bq">This chapter reviews the law and economics literature on intellectual property law and price discrimination. We introduce legal scholars to the wide range of techniques used by intellectual property owners to practice price discrimination; in many cases the link between commercial practice and price discrimination may not be apparent to non-economists. We introduce economists to the many facets of intellectual property law that influence the profitability and practice of price discrimination. The law in this area has complex effects on customer sorting and arbitrage. Intellectual property law offers fertile ground for analysis of policies that facilitate or discourage price discrimination. We conjecture that new technologies are expanding the range of techniques used for price discrimination while inducing new wrinkles in intellectual property law regimes. We anticipate growing commentary on copyright and trademark liability of e-commerce platforms and how that connects to arbitrage and price discrimination. Further, we expect to see increasing discussion of the connection between intellectual property, privacy, and antitrust laws and the incentives to build and use databases and algorithms in support of price discrimination. </blockquote>They call it a chapter, but they don't identify the book that the chapter will appear in. It's probably an interesting book.<br /><br />In any event, the chapter is a really interesting, thorough look at price discrimination generally, in addition to price discrimination as it relates to IP. It discusses the pros and cons as well as the assumptions that underlie each. If you are interested in a better understanding of the economics of IP (and secondarily, the internet), this is a good read. Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-21756160700905615122018-12-11T10:34:00.000-05:002018-12-11T10:34:42.571-05:00The Value of Patent Applications in Valuing FirmsIt's an age-old question that we've blogged about here <a href="https://writtendescription.blogspot.com/2018/05/examining-role-of-patents-in-firm.html" target="_blank">before</a> - what role do patents have on firm value? And is any effect due to signaling or exclusivity? Does the disclosure in the patent have any value? Does anybody read patents?<br /><br />These are all good questions that are difficult to measure, and so scholars try to use natural experiments or other empirical methods to divine the answer. In a recent draft, Deepak Hegde, Baruch Lev, and Chenqi Zhu (all NYU Stern Business) use the AIPA to provide some useful answers. For those unaware, the AIPA mandated that patent applications be published after 18 months by default, rather than held secretly until patent grant. The AIPA is the law that keeps on giving; there have been <a href="https://scholar.google.com/scholar?hl=en&amp;as_sdt=1%2C39&amp;q=AIPA+patent+natural+experiment&amp;btnG=" target="_blank">several</a> studies that use the "shock" of the AIPA to measure what effect patent publications had on a variety of dependent variables.<br /><br />So, too, in <i>Patent Disclosure and Price Discovery</i>. A draft is available on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274837">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">We focus in this study on the exogenous event of the enactment of American Inventor’s Protection Act of 1999 (AIPA), which disseminates timely, detailed, and credible public information on R&amp;D activities through pre-grant patent disclosures. Exploiting the staggered timing of patent disclosures, we identify a significant improvement in the efficiency of stock price discovery. This improvement is stronger when patent disclosures reveal firms’ successful, new, or technologically valuable inventions. This improvement is more pronounced for firms in high-tech or fast-moving industries, or with a large institutional ownership or analyst coverage. We also find stock liquidity rises and investors’ risk perception of R&amp;D drops after the enactment of AIPA. Our results highlight the importance of timely, detailed, and credible disclosures of R&amp;D activities in alleviating the information problems faced by R&amp;D-intensive firms. </blockquote>This is a short abstract, so I'll fill in a few details. The authors measure the effect on&nbsp; intra-period timeliness, a standard measure used to proxy for "price discovery," or how quickly information enters the market and settle the price of a stock. There are a lot of articles on this, but here's <a href="https://www.sciencedirect.com/science/article/pii/S104295731200040X" target="_blank">one</a> for those interested (paywall, sorry).<br /><br />In short, the authors look at how quickly price discovery occurred before and after the AIPA, correcting for firm fixed effects and other variables. One of the nice features of their model is that patent applications occurred over a period of years, and so the "shock" of patent publication was not distributed only in one year (which could have been affected by something other than the AIPA that happened in that same year).<br /><br />They find that price discovery is faster after the AIPA. Interestingly, they also find that the effect is more pronounced in high-tech and fast moving fields -- that is, industries where new R&amp;D information is critically important.<br /><br />Finally, their results say something about the nature of the patent disclosure itself - the effects come from disclosure of the information, and not necessarily the patent grant. Thus, the signaling effect may really relate to information, and (some) people may well read patents after all.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-50868434461250660252018-12-10T23:48:00.000-05:002018-12-11T12:37:10.964-05:00Adam Mossoff: Are Property Rights Created By Statute "Public Rights"? I greatly enjoyed Professor Adam Mossoff's new article, <i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3289338">Statutes, Common-Law Rights, and the Mistaken Classification of Patents as Public Rights</a></i>, forthcoming in the <i>Iowa Law Review.</i>&nbsp; Mossoff's article is written in the wake of&nbsp;<a href="https://www.supremecourt.gov/opinions/17pdf/16-712_87ad.pdf" style="font-style: italic;">Oil States Energy Services v. Green's Energy Group</a>,<i>&nbsp;</i>where the Supreme Court held it is not unconstitutional for the Patent Trial &amp; Appeals Board (PTAB), an agency in the Department of Commerce, to hear post-issuance challenges to patents, without the process and protections of an Article III court. Justice Thomas' opinion concluded that patents are "public rights" for purposes of Article III; therefore, unlike, say, property rights in land, patents can be retracted without going through an Article III court.<br /><br />Mossoff's article objecting to this conclusion is a logical follow on to his prior work, while also providing new insights about the nature of patents, property, and the public rights doctrine. He does so quite concisely too, with the article coming in at only 21 pages. <br /><br /><a name='more'></a><i>The Public Rights Doctrine</i><br /><i><br /></i>The general rule is that Article III mandates that disputes involving "private rights"<span style="font-family: &quot;calibri&quot; , sans-serif; font-size: 12pt;">—</span>rights that arise as between citizens, such as rights arising under contract, tort, or property law<span style="font-family: &quot;calibri&quot; , sans-serif; font-size: 12pt;">—</span>must be adjudicated in Article III courts. (Mossoff, at 5). But there is an exception for rights classified as "public rights," created not from relations between individual citizens, but from relations with the sovereign. &nbsp;(Mossoff, 4) ("[A] public right is a privilege granted to or created in a citizen 'in connection with the performance of the constitutional functions of the executive or legislative departments.' ") (quoting&nbsp;<i>Crowell v. Benson,</i> 285 U.S. 22, 50 (1932)). If a legal entitlement is classified as a public right, this means the legislature has discretionary power to retract it, and to give non-Article III agency courts in the political branch, such as the PTAB, power over this process. Mossoff summarizes the basic idea behind the public rights exception thus: " '[as] Congress giveth, Congress [can] taketh away' ..." (Mossoff, at 5) (quoting&nbsp;<i>NGS American, Inc. v. Barnes</i>, 998 F.2d 296, 298 (9th Cir. 1993) (referring to Congress’ authority with respect to employee benefit plans under ERISA)).<br /><br />Importantly, Article III's mandate that disputes over private rights be adjudicated by the judicial branch arises from a concern over <i>separation of powers</i>, not procedural due process. As Professor Greg Dolin puts it in his recent article,<i>&nbsp;<a href="https://scholarship.kentlaw.iit.edu/cgi/viewcontent.cgi?article=1207&amp;context=ckjip">Yes, The PTAB is Unconstitutional</a>,</i>&nbsp;Article III's solicitude for adjudications involving private rights has two purposes: to protect litigants’ right to have claims decided before judges whose decisions are not affected by other branches of government, and to preserve separation of powers at an institutional level by dividing responsibilities and maintaining the balance between the legislature, the executive, and the judiciary. <a href="https://scholar.google.com/scholar_case?case=10296811528183203766&amp;q=matthews+eldridge&amp;hl=en&amp;as_sdt=6,33">Due process</a>, which mandates certain procedural safeguards when government takes actions&nbsp;that threaten "liberty" or "property" interests within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment, is a separate issue. A right that is classified as "private" for purposes of Article III receives a fuller panoply of protection, including both a guarantee of an Article III forum and potential compensation against a Taking under the Fifth or Fourteenth Amendment. But&nbsp;a right that is&nbsp;classified as "public" for purposes of Article III's public rights exception still triggers procedural due process. Thus, the Court's' decision in <i>Oil States</i>&nbsp;that patents are public rights does not deprive patentees of standard due process protections.<br /><br /><i>Mossoff's Argument&nbsp;</i><br /><br />It is not surprising that Mossoff would object to Justice Thomas' decision classifying patents as public rights. In his 2007 article,&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=892062."><i>Who Cares What Thomas Jefferson Thought About Patents? Reevaluating the Patent 'Privilege' in Historical Context</i></a>,&nbsp;Mossoff questioned the common assumption that patents are merely "privileges" that are granted at the whim of the sovereign. By retracing what the term "privilege" actually meant in historical context, Mossoff argued patents were in fact <i>not</i> viewed as rights contingent on the sovereign, but as private property rights based on a Lockean labor theory of property and natural rights philosophy.<br /><br />Although many may disagree with Mossoff's argument that patents are based on natural rights, it is hard to ignore the historical case law Mossoff unearthed. His work, in that article and thereafter, has clearly been influential. The dissent in <i>Oil States</i>, written by&nbsp;Justice&nbsp;Gorsuch and joined by Chief Justice Roberts, cited extensively to Mossoff's scholarship in order to support their view that allowing an executive agency to revoke patents was a departure from historical practice, since, Justice Gorsuch wrote, "[o]nly courts could hear patent challenges in England at the time of the founding[,]" and risked undermining "the promise of judicial independence." &nbsp; <br /><br />Mossoff's new article&nbsp;is not duplicative of his prior work. Nor is it duplicative of Gorsuch's dissent. Rather, Mossoff makes important insights about how patents are classified in the private rights/public rights framework, and about how we tend to think about the private rights/public rights framework more generally. In short, his article illustrates the inaccuracy of a common assumption, which both sides sometimes made in the course of the&nbsp;<i>Oil States</i> case: that property rights created through <i>common law </i>are "private rights," while property rights created through <i>statutes</i> are "public rights." Here is an excerpt from Justice Thomas' opinion in this regard (case citations and Latin removed):<br /><blockquote class="tr_bq">[P]atents are “public franchises” that the Government grants “to the inventors of new and useful improvements.” The franchise gives the patent owner “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States.” <b>&nbsp;That right “did not exist at common law.” Rather, it is a “creature of statute law.”</b></blockquote>Mossoff, I think rightly, argues that this distinction, between statutes as public rights and common law rights as private rights, is far too simplistic. It actually makes little sense in light of history and in light of how property law works today. Many property rights have mixed statutory and common law origins. Mossoff draws this out in the paper, with comprehensive citations to historical case law. Here is the key argument:<br /><blockquote class="tr_bq">At common law and in the early American Republic, courts and commentators recognized that the distinction between statutes and common law rights was merely a generalized distinction that did not reflect the complex institutional relationship between legislatures and courts in creating and applying legal rights. ... The reason is simple: <b>all legal rights share a mixed provenance in both statutes and judicial decisions, and thus this distinction between statutes and judicial decisions could never serve as a coherent rule for distinguishing public rights and private rights. &nbsp;</b></blockquote><div>(Mossoff, 10).</div><div><br /></div><div>Mossoff goes on to document copious examples of property rights with their basis in (often both) statutory and common law:</div><blockquote class="tr_bq">The fundamental role of statutes in creating property rights in land has continued in the states from the early years of the American Republic up through today. State legislatures have enacted statutes codifying and securing the rights of adverse possessors, creating title recordation requirements, defining and securing conveyance rights, defining and securing wills and the creation of future interests in land...<br />...<br />Even the notorious common-law doctrine, the rule against perpetuities, has been codified in many states.</blockquote><div>(Mossoff, 12-13).</div><br />The upshot, for Mossoff, is as follows. The fact that patents are created under a statutory regime codified in the Patent Act (which incidentally was passed pursuant to a specifically delineated constitutional power under Article I, Section 8, Clause 8) is not determinative of whether patents are private or public rights for purposes of Article III.<br /><br />There are two reasons. First, as just explained, many classic property rights are, to quote Justice Thomas' quotation, a "creature of statute law." Thus, patents being creatures of statute law does not answer whether they are private or public rights. Second, patent law has evolved through a lawmaking process that resembles common law. As Mossoff puts it, citing to case law and appropriate scholarship on the issue,<br /><blockquote class="tr_bq">[In patent law,] courts have created out of whole cloth new substantive legal rights that are not listed anywhere in the patent statutes. For instance, courts created the exhaustion doctrine, secondary liability, the experimental use defense [...etc.]... &nbsp;[I]n addition ... courts have created substantive doctrines in interpreting and applying statutory provisions in the Patent Act. These judicially-created doctrines become “the law” that is subsequently applied by courts, and patent law is replete with them. For example, the “all elements rule” in comparing a patent to a product or process in finding either literal or equivalents infringement is found nowhere in § 271... [etc.]</blockquote>(Mossoff, 17-18).<br /><br />The implication of the fact that patent law, despite being statutory, proceeds through a common law method, is to melt away the notion that patents are simply creatures of statute. If anything, patents are creatures of mixed statutory and common law<span style="font-family: &quot;calibri&quot; , sans-serif; font-size: 16px;">—</span>not that different from certain property rights in land like those generated through adverse possession.<br /><br />I think this reasoning is sound, and am grateful for the impetus to reexamine my own assumption about the nature of a "public right." Of course, it will almost certainly not change people's minds on whether patents are public rights or on whether&nbsp;<i>Oil States&nbsp;</i>was rightly decided. Even&nbsp;after&nbsp;we dispose of the overly simplistic distinction between statutory and common law property rights, many will still argue, quite reasonably, that patents are public rights. But this is a different argument that Professor Mossoff can have with Justice Thomas, and the others whose work Mossoff discusses in the paper, such as&nbsp;<a href="https://patentlyo.com/patent/2017/11/stabilize-constitutional-footing.html">Professor Mark Lemley</a>&nbsp;and&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2945639">Professor Greg Reilly</a>.<br /><br /><div><i>Public Rights, State Patents, and State Courts&nbsp;</i></div><div><div></div><br />I do have one comment. I was surprised not to see more discussion, or citation to literature, regarding state and colonial patents. Mossoff mentions them, but only very briefly.</div><blockquote class="tr_bq"><b>From the first enactments of copyright and patent statutes by the states under the Articles of Confederation</b>, and then by Congress enacting the first federal patent and copyright statutes in 1790, courts interpreted, applied and extended these statutes in common law fashion in crafting the doctrines that comprise the fundamental rights and duties in U.S. patent law.</blockquote><div>(Mossoff, 17).</div><div><br /></div><div>As I discussed in my article on this subject,&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2134284"><i>State Patent Laws in the Age of Laissez-Faire</i>,</a>&nbsp;state and colonial patents (at least those I reviewed) do resemble, superficially, "public rights" that could be retracted by the sovereign if the requirements of the grant were not met. Indeed, some were retracted, such as John Fitch's steamboat patent from the state of New York. As I wrote, "New York’s retraction of Fitch’s 1787 grant in 1798 suggests that the state could have rescinded an inventor’s patent for failure to establish a working technology in state jurisdiction even when the patent contained no explicit working clause." (Hrdy, 66, n. 83) (quoting&nbsp;<i>Livingston v. Van Ingen, 9 Johns.&nbsp;</i>507 (N.Y. 1812)).<br /><br />After reading Mossoff's article, I agree that the fact that state and colonial grants were statutory rights is not dispositive on the issue of whether they are public rights or private rights under Article III. But I would like to see Professor Mossoff's answer as to whether state patents were, despite appearances, more like private rights than public rights, and what state and colonial practice tells us about patents' status today under the federal Patent Act. If patents were being retracted by state legislatures before, and after, ratification of the Constitution with very little legal process (probably not even due process in Fitch's case), doesn't this suggest patents were seen as "public rights" at the time of ratification, and when the first Patent Act was passed in 1790?<br /><br />I raised this question with Professor Dolin. His response was that the grounds for the cancellation matter, as does the process through which the revocation is effectuated. If the state cancelled the patent based on a failure to meet the requirements of a working clause, for instance, this may not undermine the notion that this was a private right. The patent grant may have been akin to a real property right granted subject to a condition subsequent, with a right of reentry, depending on the terms of the original grant. The real question, Dolin said, is whether such revocations of state patents were contestable in courts with some degree of independence from the political branches. At that time, this would have been <i>state</i> courts. (Federal courts did not even gain their <a href="https://www.law.cornell.edu/uscode/text/28/1338">exclusive jurisdiction over <i>federal</i> patent cases</a> until some time later, and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2355858">uncertainty over state courts' jurisdiction in patent cases</a> continued into modern times).<br /><br />This leads to a related conundrum that bugs me about the public rights doctrine: the doctrine does not much care about what happens in state courts. As explained above, the purpose of Article III's public rights versus private rights distinction is to preserve the separation of powers as between Congress and the federal judiciary. But it is not a guarantee of due process, or a guarantee of <i>federal</i> process. This means Article III would not allow a vested property right, such as a piece of land, to be adjudicated in a non-Article III court, based on the concern that this would deprive litigants of a forum free of influence by the political branches. But at the same time, under Article III, Congress is not required to create lower federal courts and is free to authorize <i>state</i> courts to hear disputes arising under federal law. Indeed, most claims can brought in state or federal court. Most property rights could be invalidated in a state court and not get a true Article III court. This is the case regardless of whether state judges are elected or appointed, and regardless of how sloppy a state's rules of procedure are. <br /><br />If Congress relaxed patents' exclusive jurisdiction, amended&nbsp;<a href="https://www.law.cornell.edu/uscode/text/28/1338">28 U.S.C. § 1338</a>, and declared tomorrow that federal patents can be litigated and potentially invalidated in state courts (beyond the confines of "backward" looking situations like&nbsp;<i>Gunn v. Minton),&nbsp;</i>this would actually be okay under the Article III public rights doctrine. When you consider state courts as a backdrop option, in a world where there was not exclusive federal jurisdiction in patent cases, the public rights doctrine seems a bit silly. &nbsp;It would be okay for patents to be litigated in state courts so long as other constitutional protections like due process were satisfied...but not in the PTAB. &nbsp; <br /><br />----<br />In sum, Mossoff does a great service in calling out the oversimplification that creatures of statute are not necessarily "public rights" for purposes of Article III. I am not sure this leads to the conclusion that patents deserve the full panoply of protection given to private rights, now or historically. &nbsp;Whether government should, at a normative level, be able to re-review patents is a very interesting and difficult question, on which people have different views. Many of these issues are drawn out by Professor Dolin and Professor Irina Manta in&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2652526">Taking Patents</a></i>. &nbsp;I co-authored a response with <a href="https://www.wc.com/Attorneys/Ben-Picozzi">Ben Picozzi </a>expressing disagreement, opining that <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2770723">the America Invents Act was not a taking</a>, and that government may constitutionally reconsider patent grants under the Takings Clause. I reach the same conclusion under Article III, though agree with Professor Mossoff that <i>how</i> we reach this conclusion is not altogether clear when we consider treatment of other forms of property rights.&nbsp;</div>Camilla Alexandra Hrdyhttps://plus.google.com/104611102227348345869noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-54032765539226578322018-12-05T00:28:00.001-05:002018-12-05T00:28:53.000-05:00Helsinn Argument Recap: Did the AIA Change the Meaning of Patent Law's "On Sale" Bar?As Michael <a href="https://writtendescription.blogspot.com/2018/12/how-important-is-helsinn.html">previewed</a> this morning, the Supreme Court heard argument today in <i><a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2018/17-1229_22q3.pdf">Helsinn v. Teva</a></i>, which is focused on the post-America Invents Act § 102(a)(1) bar on patents if "the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public" before the relevant critical date. The Federal Circuit <a href="http://www.scotusblog.com/wp-content/uploads/2018/03/17-1229-opinion-below.pdf">held</a> that Helsinn's patents were invalid because Helsinn had sold the claimed invention to a distributor more than one year before filing for a patent, but Helsinn (supported by the United States as amicus) argues that the "on sale" bar is triggered only by sales that make the invention "available to the public" under a broad reading of "public."<br /><br />During argument, none of the Justices seemed inclined to favor Helsinn's attempt to argue that "on sale" clearly means on sale to everybody—Justice Kavanaugh said "it's pretty hard to say something that has been sold was not on sale," and Chief Justice Robert's noted that Helsinn's interpretation "might not be consistent with the actual meaning of the world 'sale'" because "if something's on sale, it doesn't have to be on sale to everybody." Nor did they jump at the government's argument that "on sale" means a product can be purchased by its ultimate consumers—Justice Sotomayor said: "This definition of 'on sale,' to be frank with you, I've looked at the history cited in the briefs, I looked at the cases, I don't find it anywhere."<br /><br />Helsinn's better statutory argument is that the meaning of "on sale" is modified by "or otherwise available to the public" to require that the sale be publicly available. Indeed, for a reader with no background in patent law, this might seem like the most natural reading of the statute. Justice Alito said that "the most serious argument" against the Federal Circuit's position is "the fairly plain meaning of the new statutory language," and that he "find[s] it very difficult to get over the idea that this means that all of the things that went before are public." And Justice Gorsuch suggested, at least for hypothetical purposes, that "the introduction of the 'otherwise' clause introduced some ambiguity about what 'on sale' means now." But if there was more support to reverse the Federal Circuit, it was not apparent from the argument.<br /><br />Much of the statutory language used in the Patent Act—including "on sale"—has developed a technical legal meaning over time, generally due to courts' attention to the law's utilitarian focus. For example, patentable subject matter caselaw is "implicit" in § 101, courts have put a highly specialized gloss on the word "obvious" in § 103, and—relevant here—the § 102 categories of prior art have long been interpreted to include relatively obscure and private uses. Although this expansive definition of prior art might seem unfair to patentees, there are also strong policy arguments in its favor, including (1) encouraging patentees to get to the patent office early (leading to earlier disclosure and patent expiration) and (2) avoiding patents when their costs (including higher prices for consumers and subsequent innovators) aren't likely to be outweighed by their innovation-incentivizing benefits, such as when there is independent invention—even when evidence of that invention is relatively obscure.<br /><br />As Justice Kavanaugh noted at argument today, Mark Lemley's <a href="https://www.supremecourt.gov/DocketPDF/17/17-1229/66149/20181009122047518_17-1229_Helsinn%20v.%20Teva_bsac.pdf">amicus brief</a> on behalf of forty-five IP professors describes the long history of treating relatively non-public disclosures as prior art, including (1) "noninforming public use" cases, (2) "output of a patented machine or process" cases, and (3) cases involving secret, confidential, and nonpublic sales transactions. Justice Breyer also mentioned the Lemley brief, and he said it "seems right" to have the on-sale bar include private sales "to prevent people from benefitting from their invention prior to and beyond the 20 years that they're allowed." The legislative history of the AIA does not suggest that Congress intended to do sweep away all of these cases—Justice Kavanaugh said that he thinks "the legislative history, read as a whole, goes exactly contrary" to Helsinn's contention because "there were a lot of efforts … to actually change the 'on sale' language, and those all failed," leaving the losers "trying to snatch victory from defeat" with "a couple statements said on the floor."<br /><br />It is perhaps because of this history that Helsinn and the government seemed more focused on the argument that "on sale" has always excluded nonpublic sales than on the argument that the AIA changed the law. Justice Ginsburg's only comment during argument was to ask Helsinn to clarify this: "I thought that one argument was that the AIA changed the way it was. But … you seem to say there was no change; 'on sale' never included the secret sale." Arguing for the government, Malcolm Stewart even conceded—in response to questioning from Justice Kagan—that if the law was settled pre-AIA such that "on sale" included nonpublic sales, then the new AIA language ("or otherwise available to the public") "would be a fairly oblique way of attempting to overturn" the law. But based on my reading of the transcript, it doesn't seem likely that the argument that "on sale" has always meant "on sale publicly" will get five votes.<br /><br />I waited until after writing the above to get <a href="http://www.scotusblog.com/2018/12/argument-analysis-justices-debate-revised-language-in-patent-priority-statute/">Ronald Mann's take</a> at SCOTUSblog, but I think I very much agree on his bottom line conclusion: while this isn't "a case in which the argument clearly presages the result," the overall transcript "suggests that the most likely outcome will be an affirmance."Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-36012242714290218262018-12-04T14:23:00.001-05:002018-12-05T07:20:01.620-05:00How Important is Helsinn?In honor of the oral argument in <a href="http://www.scotusblog.com/case-files/cases/helsinn-healthcare-s-a-v-teva-pharmaceuticals-usa-inc/" target="_blank"><i>Helsinn</i></a> today, I thought I would blog about a study that questions its importance. For those unaware, the question the Supreme Court is considering is whether the AIA's new listing of prior art in 35 U.S.C. §102(a)(1): "the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public..." changed the law.<br /><br />Since forever, on sale meant any offer or actual sale, regardless of who knew about it. Some have argued that the addition of "or otherwise available to the public" means that only offers that are publicly accessible count as prior art. I think this is wrong, and signed on to an amicus brief saying so. We'll see what the Court says. Note that non-public does not mean "secret." True secret activity is often considered non-prior art, but the courts have defined "public" to mean "not-secret." The question is whether that should change to be "publicly accessible."<br /><br />But how big a deal is this case? How many offers for sale would be affected? Steve Yelderman (Notre Dame, and soon to be Gorsuch clerk) wanted to know as well, so he did the hard work of finding out. In a draft paper on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3286022" target="_blank">SSRN</a> that he blogged about at <a href="https://patentlyo.com/patent/2018/11/yelderman-change-district.html" target="_blank">Patently-O</a>, he looked at all invalidity decisions to see exactly where the prior art was coming from. Here is the abstract for <i>Prior Art in the District Court</i>:<br /><blockquote class="tr_bq">This article is an empirical study of the evidence district courts rely upon when invalidating patents. To construct our dataset, we collected every district court ruling, verdict form, and opinion (whether reported or unreported) invalidating a patent claim over a six-and-a-half-year period. We then coded individual invalidation events based on the prior art supporting the court’s analysis. In the end, we observed 3,320 invalidation events based on 817 distinct prior art references. </blockquote><blockquote class="tr_bq">The nature of the prior art relied upon to invalidate patents informs the value of district court litigation as an error correction tool. The public interest in revoking erroneous patent grants depends significantly on the reason those grants were undeserved. Distinguishing between revocations that incentivize future inventors and those that do not requires understanding the reason individual patents are invalidated. While prior studies have explored patent invalidity in general, no study has reported data at the level of detail necessary to address these questions. </blockquote><blockquote class="tr_bq">The conclusions here are mixed. On one hand, invalidations for lack of novelty bear many indicia of publicly beneficial error correction. Anticipation based on obscure prior art appears to be quite rare. When it comes to obviousness, however, a significant number of invalidations rely on prior art that would have been difficult or impossible to find at the time of invention. This complicates — though does not necessarily refute — the traditional view that obviousness challenges ought to be proactively encouraged. </blockquote>So, let's get right to the point. The data seem to show that "activity" type prior art (that is sale or use) is much more prevalent in anticipation than in obviousness. This is not surprising, given that this category is often the patentee's own activities.<br /><br />With respect to non-public sales, they estimate that a maximum of 14% of anticipation and 2% of obviousness invalidations based on activity were based on plausibly non-public sales. This translates to about 8% of all anticipation invalidations and 1% of all obviousness invalidations. Because there are about as many obviousness cases as anticipation cases, this averages to 4.25% of all invalidations. They note that with a different rule, some of these might have been converted to "public" sales upon more attention paid to providing such evidence.<br /><br />A related question is whether the inventor's actions can invalidate, or whether the AIA overruled <i><a href="https://law.justia.com/cases/federal/appellate-courts/F2/153/516/1478978/" target="_blank">Metallizing Engineering</a></i>, which held that an inventor's secret use can invalidate, even if a third-party's secret use does not. The study found that the plaintiff's actions were relevant in 27% of anticipation invalidations and 13% of obviousness invalidations.&nbsp; Furthermore, they found that most of the secret activity was associated with either the plaintiff or defendant--this makes sense, as they have access to such secret information.<br /><br />So, what's the takeaway from this? I suppose where you stand depends on where you sit. I think that wiping out 4% of the invalidations, especially when they are based on the actions of one of the two parties, is not a good thing. It's bad to allow the patentee to non-publicly sell and have the patent, and it's bad to hold the defendant liable even if it has been selling the patent in a non-public (though non-secret) way. We're talking about 20 claims per year that go the other way - too high for my taste, especially when it means we have to start defining new ways to determine whether something is truly public.<br /><br />Furthermore, the stakes of reversing <i>Metallizing</i> are much higher. I freely admit that the "plaintiff's secret actions only" rule has a tenuous basis in the text of the statute, but it has been the law for a long time without being expressly overruled by two subsequent revisions. Given that more than 25% of the invalidations were based on the plaintiffs actions, I think it would be difficult to reverse course.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-36569310423409190432018-11-27T19:40:00.000-05:002018-11-27T19:40:26.229-05:00Judging Patents by their Rejection UseThe quest for an objective measure of patent quality continues. Scholars have attempted many, many ways to calculate such value, including citations, maintenance fee payments, number of claims, length of claims, and so forth. As each new data source has become available, more creative ways of measuring value have been developed (and old ways of measuring value have been validated/questioned).<br /><br />Today, I'd like to briefly introduce a new one: the use of patents rejecting other patents. Chris Cotropia (Richmond) and David Schwartz (Northwestern) have posted a short essay on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274995">SSRN</a> introducing their methodology.* The abstract for the cleverly named <i>Patents Used in Patent Office Rejections as Indicators of Value</i> is here:<br /><blockquote class="tr_bq">The economic literature emphasizes the importance of patent citations, particularly forward citations, as an indicator of a cited patent’s value. Studies have refined which forward citations are better indicators of value, focusing on examiner citations for example. We test a metric that arguably is closer tied to private value—the substantive use of a patent by an examiner in a patent office rejection of another pending patent application. This paper assesses how patents used in 102 and 103 rejections relate to common measures of private value—specifically patent renewal, the assertion of a patent in litigation, and the number of patent claims. We examine rejection data from U.S. patent applications pending from 2008 to 2017 and then link value data to rejection citations to patents issued from 1999 to 2007. Our findings show that rejection patents are independently, positively correlated with many of the value measurements above and beyond forward citations and examiner citations. </blockquote><br />The essay is a short, easy read, and I recommend it. They examine nearly 700,000 patents used in anticipation and obviousness rejections and find that not all patent citations are equal, and that those citations that were used in a rejection have additional ability to explain value, even when other predictors, such as forward citations and examiner citations are included in the model. The only value measure that had no statistically significant relationship to rejection patents was use in litigation (even though forward citations did). This may say something about the types of patents that are litigated or about the role of rejection patents in litigation.<br /><br />That's about all I'll say about this essay. The paper is a brief introduction to the way this new data set might be used, and this blog post is a brief introduction to the paper.<br /><br />*At least, I think it's theirs. If you know of an earlier article that measures this on any kind of scale, please let me know!Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-60582572986436008972018-11-20T10:01:00.001-05:002018-11-20T10:01:14.885-05:00The Role of IP in Industry StructureI've long been a fan of Peter Lee's (UC Davis) work at the intersection of IP and organizational theory. His latest article is another in a long line of interesting takes on how IP affects and is affected by the structure and culture of its creators. The latest draft, forthcoming in Vanderbilt Law Review, is titled <i>Retheorizing the Impact of Intellectual Property Rights on Industry Structure</i>. The draft is on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3271882">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">Technological and creative industries are critical to economic and social welfare, and the forces that shape such industries are important subjects of legal and policy examination. These industries depend on patents and copyrights, and scholars have long debated whether exclusive rights promote industry consolidation (through shoring up barriers to entry) or fragmentation (by promoting entry of new firms). Much hangs in the balance, for the structure of these IP-intensive industries can determine the amount, variety, and quality of drugs, food, software, movies, music, and books available to society. This Article retheorizes the role of patents and copyrights in shaping industry structure by examining empirical profiles of six IP-intensive industries: biopharmaceuticals; agricultural biotechnology, seeds, and agrochemicals; software; film production and distribution; music recording; and book publishing. It makes two novel arguments that illuminate the impacts of patents and copyrights on industry structure. First, it distinguishes along time, arguing that patents and copyrights promote the initial entry of new firms and early-stage viability, but that over time industry incumbents wielding substantial IP portfolios often absorb such entrants, thus reconsolidating those industries. It also distinguishes along the value chain, arguing that exclusive rights most prominently promote entry in “upstream” creative functions—from creating biologic compounds to coordinating movie production—while tending to promote concentration in downstream functions related to commercialization, such as marketing and distribution of drugs and movies. This Article provides legal and policy decision makers with a more robust understanding of how patents and copyrights promote both fragmentation and concentration, depending on context. Drawing on these insights, it proposes calibrating the acquisition of exclusive rights based on the size and market position of a rights holder. </blockquote>Professor Lee surveys six industries, looking for commonalities in how they are structured, and how IP fits in with entry and consolidation. This is not an empirical paper in the sense of, say <a href="https://www.nber.org/papers/w12563" target="_blank">Cockburn &amp; MacGarvie</a>, who found that patents reduced entry into the software industry unless the entrant had patent applications. Instead, it looks at the history of entry and consolidation in the different industries as a whole, using studies like Cockburn &amp; MacGarvie (which is discussed in some detail) as the foundational base for the theoretical view that puts all the empirical findings together.<br /><br />The result is a sort of two dimensional axis (though Prof. Lee provides no chart, which wouldn't have added much). He finds that, in general, IP leads to entry early in time, but as the industry (or product area) matures, then IP leads instead to consolidation, as companies find it easier to acquire IP than create it on its own in crowded areas. He also finds, however (and I think this is a key insight in the paper), that IP leads to more entry upstream (early creation stage) and more consolidation downstream (commercialization and marketing).<br /><br />This second axis is the more interesting one (there are lots of articles about development of thickets over time), but it is also the harder one to prove, and it depends a lot on your definition. For example, Professor Lee discusses video streaming services such as Netflix and Hulu but doesn't discuss whether he views them as horizontally consolidated because there are so few of them. I've always thought of IP as fragmenting video streaming, because rights holders want to monetize their IP by holding on to it. Hence, we have to pay separately to get Star Trek: Discovery on CBS streaming, Hulu has many TV shows that Netflix doesn't, and soon Disney will pull out of its exclusive deal with Netflix to create its own service. That's 5 or more services I have to sign up with if I want to get all the shows (contrast this with the story he tells about music streaming, in which the music distributors all distribute all the music, and the distributor record labels consolidate to enhance market power against the distributor streamers). Indeed, this issue is so important that the services have (as Prof. Lee points out) vertically integrated by consolidating production with distribution (Netflix and Amazon making its own shows, Comcast and NBC/Universal, and AT&amp;T buying Warner). Professor Lee discusses this as a penchant for consolidation, but it is not clear why IP drives it. I think it is consolidation caused by upstream entry (as he would predict) by the likes of Netflix and Amazon in the creation space, because they also happen to be distributors. But then why don't the record labels become streamers? Why does this fragmentation work for video and not music? I'd be interested in hearing how Professor Lee breaks this down.<br /><br />As you can probably tell, this is a thoughtful and thought-provoking paper, and I recommend it, especially to those unfamiliar with the literature on the role of IP in industry organization and entry. Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-50800736096971650612018-11-13T12:45:00.000-05:002018-11-13T12:45:15.848-05:00Measuring Alice's Effect on Patent ProsecutionIt's a bit weird to write a blog post about something posted at another blog in order to bring attention to it, when that blog has many more readers than this blog. Nonetheless, I thought that the short essay <i>Decoding Patentable Subject Matter</i> by Colleen Chien (Santa Clara) and her student Jiun Ying Wu, in the Patently-O Law Journal was worth a mention. The article is also on <a href="https://www.blogger.com/">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">The Supreme Court’s patentable subject matter jurisprudence from 2011 to 2014 has raised significant policy concerns within the patent community. Prominent groups within the IP community and academia, and commentators to the 2017 USPTO Patentable Subject Matter report have called for an overhaul of the Supreme Court’s “two-step test.” Based on an analysis of 4.4 million office actions mailed from 2008 through mid-July 2017 covering 2.2 million unique patent applications, this article uses a novel technology identification strategy and a differences-in-differences approach to document a spike in 101 rejections among select medical diagnostics and software/business method applications following the Alice and Mayo decisions. Within impacted classes of TC3600 (“36BM”), the 101 rejection rate grew from 25% to 81% in the month after the Alice decision, and has remained above 75% almost every month through the last month of available data (2/2017); among abandoned applications, the prevalence of 101 rejection subject matter rejections in the last office action was around 85%. Among medical diagnostic (“MedDx”) applications, the 101 rejection rate grew from 7% to 32% in the month after the Mayo decision and continued to climb to a high of 64% and to 78% among final office actions just prior to abandonment. In the month of the last available data (from early 2017), the prevalence of subject matter 101 rejections among all office actions in applications in this field was 52% and among office actions before abandonment, was 62%. However outside of impacted areas, the footprint of 101 remained small, appearing in under 15% of all office actions. A subsequent piece will consider additional data and implications for policy. </blockquote><blockquote class="tr_bq">This article is the first in a series of pieces appearing in Patently-O based on insights gleaned from the release of the treasure trove of open patent data starting the USPTO from 2012. </blockquote>The essay is a short, easy read, and the graphs really tell you all you need to know from a differences-in-differences point of view - there was a huge spike in medical diagnostics rejections following <i>Mayo</i> and software &amp; business patent rejections following <i>Alice</i>. We already knew this from the <a href="https://www.bilskiblog.com/" target="_blank">Bilski Blog</a>, but this is comprehensive. Interesting to me from a legal history/political economy standpoint is the fact that software rejections were actually trending <i>downward</i> after <i>Mayo</i> but before <i>Alice</i>. I've always thought that was odd. The <i>Mayo</i> test, much as I dislike it, easily fits with abstract ideas in the same way it fits with natural phenomena. Why courts and the PTO simply did not make that leap until <i>Alice</i> has always been a great mystery to me.<br /><br />Another important finding is that 101 apparently hasn't destroyed any other tech areas the way it has software and diagnostics. Even so, 10% to 15% rejections in other areas is a whole lot more than there used to be. Using WIPO technical classifications shows that most areas have been touched somehow.<br /><br />Another takeaway is that the data used came from Google BigQuery, which is really great to see. I <a href="https://writtendescription.blogspot.com/2017/12/big-patent-data-from-google.html" target="_blank">blogged</a> about this some time ago and I'm glad to see it in use.<br /><br />So, this was a good essay, and the authors note it is the first in a series. In that spirit, I have some comments for future expansion:<br /><br />1. The authors mention the "two-step" test many times, but provide no data about the two steps. If the data is in the office action database, I'd love to see which step is the important one. My gut says we don't see a lot of step two determinations.<br /><br />2. The authors address gaming the claims to avoid certain tech classes, but discount this by showing growth in the business methods class. However, the data they use is office action rejections, which is lagged--sometimes by years. I think an interesting analysis would be office action rejections by date of patent filing, both earliest priority and by the date the particular claim was added. This would show growth or decline in those classes, as well as whether the "101 problem" is limited to older patents.<br /><br />3. All of the graphs start in the post-Bilski (Fed. Cir.) world. The office actions date back to 2008. I'd like to see what happened between 2008 and 2010.<br /><br />4. I have no sense of scale. The essay discusses 2000 rejections per month, and it discusses in terms of rates, but I'd like to know, for example, a) what percentage of applications are in the troubled classes? b) how many applications are in the troubled classes (and others)? c) etc.? In other words, is this devastation of a few or of many?<br /><br />5. Are there any subclasses in the troubled centers that have a better survival rate? The appendix shows the high rejection classes, what about the low rejection classes (if any)?<br /><br />I look forward to future work on this!<br /><br /><br />Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-60979262330407992692018-11-11T12:50:00.000-05:002018-11-11T16:30:50.505-05:00Recent Critiques of Post-Sale Confusion: Is Materiality the Answer?Kal Raustiala and Christopher Sprigman are well known as the authors of the book,&nbsp;<i>The Knock-Off Economy: How Imitation Sparks Innovation </i>(2012). In their new article,&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3205334">Rethinking Post-Sale Confusion</a></i>, Raustiala and Sprigman level a critique at "post-sale confusion" theory that supports many of their book's conclusions about the virtues of so-called knock-offs. In post-sale confusion cases, courts find infringement even when it is abundantly clear that consumers of obvious knock-offs are not confused at the time of purchase.<br /><br />Raustiala and Sprigman's critique of post-sale confusion theory adds to similarly critical scholarship by others such as&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Jeremy Sheff</a>&nbsp;and&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988521">Mark McKenna</a>,&nbsp;whose articles <i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Veblen Brands</a></i> and <i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988521">A Consumer Decision-Making Theory of Trademark Law</a></i>, respectively, provide the backbone for much of the discussion in this post. Professor Sheff also has a forthcoming book chapter in the <i>Cambridge Handbook on Comparative and International Trademark Law, </i>where he&nbsp;places American post-sale confusion doctrine in perspective by comparing it to the European approach.<br /><br />This post attempts to synthesize this scholarship, though cannot hope to serve as a replacement for the much more comprehensive and eloquent original work by these experts. The post also draws attention to a growing refrain by trademark scholars such as <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1823396">Rebecca Tushnet</a>, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1604845&amp;download=yes">Mark McKenna</a>, and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1604845&amp;download=yes">Mark Lemley</a>:&nbsp;that a possible response to trademark courts' embrace of alternative theories of confusion is to institute a <i>materiality</i> requirement, like courts use for false advertising claims.<br /><a name='more'></a><div><i><b><br /></b></i><i><b>What Is Post-Sale Confusion?</b></i><br /><br />Post-sale confusion is a theory of trademark infringement in which consumer confusion occurs&nbsp;<i>not</i>&nbsp;when purchasers buy the defendant's product at the point of sale, but when third parties observe the product at a later time, and wrongly believe the trademark owner is the source. The alleged harm to the trademark owner is <i>not</i> that the third party observers will go on to wrongly buy defendant's product. That would be point-of-sale confusion. Rather, the harm is that the third party observers will&nbsp;<i>not</i>&nbsp;buy plaintiff's product due to misinformation they received upon viewing the defendant's fake, such as the notion that the real item is low quality.<br /><br />Post-sale confusion&nbsp;theory is especially relevant for so-called <i><a href="https://www.law.cornell.edu/uscode/text/15/1127">counterfeit</a></i> goods (same mark, same product), such as the remarkably cheap Gucci-<i>ish</i>&nbsp;bags sold on the Upper West Side of Manhattan or the "Rolex" watches sold in Chinatown. Buyers know full well what they are getting. The concern is that others who see the fakes, "observers" (sometimes called "bystanders"), do not know, and will be affected in their own purchasing decisions by the misinformation.&nbsp; <br /><br />As Professor McKenna has explained, despite the fact that purchasers are not confused in these cases, courts "have not been content to let the copyists off the hook [.]" Rather, they have "managed to squeeze them into trademark law by focusing on observers of the goods rather than purchasers."&nbsp;&nbsp;(<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988521">McKenna</a>, 102). &nbsp;This district court's analysis, in a classic fake Rolex lawsuit, is representative of the standard understanding of post-sale confusion theory:<br /><blockquote class="tr_bq">Individuals examining the counterfeits, believing them to be genuine Rolex watches, might find themselves unimpressed with the quality of the item and consequently be inhibited from purchasing the real time piece.</blockquote>&nbsp;(McKenna, 104-105) (quoting <i>Rolex Watch U.S.A. v. Canner</i>, 645 F. Supp. 484, 493 (S.D. Fla. 1986)). <br /><br />The ultimate harm, that observers will&nbsp;not buy plaintiff's real Rolex watches after being "unimpressed with the quality" of the fakes, is&nbsp;different, and arguably lesser, than if purchasers were confused at the point-of-sale and consequently chose to buy <i>defendant's</i> watch instead of plaintiff's. But the harm is still legally cognizable. As Professor&nbsp;<a href="https://www.stjohns.edu/academics/bio/jeremy-sheff">Sheff</a>&nbsp;puts it, this traditional understanding of post-sale confusion theory is "entirely consistent with broadly accepted policy justifications for trademark enforcement." The harm is not just that observers will one day become misinformed purchasers, but also that "honest producers of quality goods may lose sales as a result[.]" &nbsp;Both injuries, Sheff writes, are ones that conventional trademark law and policy seek to prevent. (<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Sheff</a>, 779-780).<br /><br /><b><i>Sources of Law</i></b></div><div><br /></div><div>According to the courts, post-sale confusion is actionable trademark infringement. However, post-sale confusion's statutory hook is less clear than traditional point-of-sale confusion's or even than dilution's. Whereas with <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=942673">dilution</a>, Congress expressly amended the Lanham Act twice to address it (once in 1996 and once in 2006), post-sale confusion is present for the civil liability only by inference. <br /><br />Section 32(a), states, with respect to registered marks, that<br /><blockquote class="tr_bq">[a]ny person who shall, without the consent of the registrant...use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is <i><b>likely to cause confusion&nbsp;</b></i>... [is liable to the owner of the mark.]</blockquote>15 U.S.C.&nbsp;§ 1114(1)(a)(1).<br /><br />Section 43(a)(1)(A) states, with respect to unregistered marks, that<br /><blockquote class="tr_bq">[a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which... is <i style="font-weight: bold;">likely to cause confusion ...&nbsp;</i>as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person ...[is liable to the owner of the mark.]</blockquote>15 U.S.C.<i>&nbsp;</i>§ 1125(a)(1)(A).<br /><br />If you are looking for details as to when confusion must occur, they are not there. &nbsp;Rather, we have to assume that when the Act says "likely to cause confusion," it includes confusion that occurs not at the primary point-of-sale. <br /><br />Historically the statutory hook for post-sale confusion was actually clearer than it is today. As Sheff recounts in his forthcoming book chapter, under the 1905 Act, federal registrants had the right to prevent others from “reproduc[ing], counterfeit[ing], copy[ing], or colorably imitat[ing]” their registered mark on goods with “substantially the same descriptive properties” as the goods for which the mark was registered. &nbsp;This meant that even though the 1905 Act limited liability to the "double identity" category of misconduct, where both the mark and the goods were identical, courts did not have to address whether there was in fact a likelihood of confusion <i>at the point of sale</i>. &nbsp;(Sheff, book chapter draft, 4-7) (discussing 1905 Act and comparing the European approach).<br /><br />Today, in contrast to the early twentieth century, the Lanham Act is not limited to infringements that meet the double-identity standard. Instead, Section 32(a) and 43(a)(1)(A) target a broader variety of conduct so long as it is "likely to cause confusion." This includes confusion regarding&nbsp;<a href="https://scholar.google.com/scholar_case?case=2293827617926067028&amp;q=polarad+polaroid+trademark&amp;hl=en&amp;as_sdt=6,36">products sold in different markets</a>, such as&nbsp;<a href="https://h2o.law.harvard.edu/cases/4832">BORDEN ice cream vs. BORDEN milk</a>,&nbsp;and confusion with respect to mere&nbsp;<a href="https://scholar.google.com/scholar_case?case=14061770079632631584&amp;q=trademark+infringement+sponsorship+confusion&amp;hl=en&amp;as_sdt=6,36#r[9]">sponsorship or approval</a><span style="background-color: white; font-family: &quot;verdana&quot; , &quot;helvetica neue&quot; , &quot;helvetica&quot; , &quot;arial&quot; , sans-serif;">—</span>where defendant's use of plaintiff's mark implies some form of endorsement by plaintiff, if not necessarily that plaintiff is the source. Professor McKenna, with Mark Lemley, give the excellent example of <a href="https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1539618_code32215.pdf?abstractid=1407793&amp;mirid=1">soccer fans wearing pants</a>&nbsp;bearing their team's color scheme to a World Cup game, and removing their pants after being accused of misleading people into thinking the soccer team was a sponsor of their gambit.<br /><br />Yet, despite targeting a wider variety of confusing conduct, modern confusion analysis is less explicit about what happens when the purchaser of a product that bears plaintiff's&nbsp;mark in precisely the same market (watches and watches) knows that they are purchasing a knock-off. Here, the question becomes whether, given that purchasers are fully aware of what they are getting, the Lanham Act's likelihood of confusion standard can extend to confusion of observers who have not actually (yet) purchased the product<span style="font-family: &quot;verdana&quot; , &quot;helvetica neue&quot; , &quot;helvetica&quot; , &quot;arial&quot; , sans-serif;"><span style="background-color: white;">.</span></span><br /><br />Professors Raustiala and Sprigman highlight the vagueness of the statutory text with respect to post-sale confusion, but nonetheless concede that the legislative history "does suggest that Congress intended to extend the Lanham Act's protections <i>at least to those with an intent to purchase, not merely those who have purchased or are in the process of purchasing</i>." &nbsp;(Raustiala and Sprigman, 7) (emphasis added). &nbsp;Professor Sheff reaches a similar conclusion about the legislative history, noting that "bystander confusion" (his term for post-sale confusion based on a false perception of poor quality) is consistent with "the Lanham Act’s stated purpose of extending infringement liability to confusion of potential purchasers." (<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Sheff</a>, &nbsp;777-778) (discussing a 1962 amendment that eliminated language limiting liability to conduct that confused "purchasers.") (quoting Act of Oct. 9, 1962).<br /><br />McKenna, for his part, is not convinced, contending that it is illegitimate for trademark infringement law to "focus on the purchasing decisions of the <i>plaintiff’s</i> customers rather than the defendant’s..." &nbsp;(McKenna, 132, n. 198) (discussing the text of&nbsp;15 U.S.C. § 1125(a)(1)(A) (2006)). &nbsp;In&nbsp;McKenna's view, infringement would have to result from confusion that results in erroneous purchases of <i>defendant's</i> products, not of plaintiff's. <br /><br />I think&nbsp;McKenna's view is somewhat controversial given the legislative history and how courts have responded. &nbsp;Irrespective of statutory ambiguities, the courts have apparently been keen to embrace post-sale confusion. All of the authors collect numerous cases in which circuit courts have held post-sale confusion to be actionable, ranging from fake Hermes handbags to fake Rolexes and other luxury watches. (Raustiala and Sprigman, 16-17;&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Sheff</a>, 5772 note 18;&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988521">McKenna</a>, 102-106).<br /><br />On the criminal side, it appears somewhat clearer that post-sale confusion is actionable. In his article on the Trademark Counterfeiting Act (TCA),&nbsp;<a href="https://writtendescription.blogspot.com/2018/05/mark-mckenna-trademark-counterfeiting.html">blogged on previously here</a>, Professor&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3166943">McKenna</a>&nbsp;concedes that Congress had post-sale confusion in mind when it passed the TCA in 1984. McKenna argues this extension is contrary to sound policy and not precisely authorized by the text of the TCA. (McKenna, 865-866). As said&nbsp;<a href="https://writtendescription.blogspot.com/2018/05/mark-mckenna-trademark-counterfeiting.html">previously</a>,&nbsp;I think this is a controversial stance.<br /><br /><b><i>The Changing Nature of Post-Sale Confusion Cases: from Poor&nbsp;Quality to Low Status</i></b><br /><b><i><br /></i></b>Classically, the "confusion" that is said to taint observers in post-sale confusion cases has consisted of the false perception that the (admittedly not-confused) purchaser is in possession of a real brand name product, such as a Rolex watch or a Gucci bag, and&nbsp;the false perception that this product is <i>poor quality.</i>&nbsp;This false perception in turn leads observers to eschew the real thing, leading plaintiff to lose sales. &nbsp;(Rausitala and Sprigman, 13).<br /><br />However, Raustiala and Sprigman, along with Sheff and McKenna, demonstrate that courts have increasingly accepted a new version of the post-sale confusion theory. Rather than receiving a false perception of poor quality, observers receive a <i>sort-of </i>false perception of lesser&nbsp;exclusivity, and therefore of lesser&nbsp;<i>status</i>, associated with luxury goods. As Rausitala and Sprigman put it, when observers see a knock-off like a fake Gucci bag, they believe the true luxury item on which the knock-off is based has become more "common," and therefore less desirable. &nbsp;(Rausitala and Sprigman, 18). &nbsp;Sheff's prior article,&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Veblen Brands</a>,</i>&nbsp;and McKenna's article,&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988521">A Consumer Decision-Making Theory of Trademark Law</a></i>, convincingly show that courts reasoning in post-sale confusion cases has come to reflect this new notion of harm, wherein a perception of lesser exclusivity rather than poor quality drives a loss in plaintiff's profits.<br /><br />All of these authors draw on prior work by&nbsp;<a href="https://harvardlawreview.org/2010/02/intellectual-property-law-and-the-sumptuary-code/">Barton Beebe</a>, who argued in his masterful article,&nbsp;<i>Intellectual Property and the Sumptuary Code</i>, that the purpose of some intellectual property regimes has been to preserve the status of luxury goods. Identifying "the emerging phenomenon in which consumers display obvious fakes of high-status luxury goods as especially recherché signs of distinction," Beebe provocatively argued that trademark law plays a role in preserving the exclusive status of luxury goods.&nbsp;&nbsp;(Beebe, 823).&nbsp;"[I]if our goal were to perpetuate a system of consumption-based social distinction," he writes,<br /><blockquote class="tr_bq">then we would offer exclusive rights in the intangible designs of distinctive goods or at least in some distinguishing characteristic of those designs (such as a word- or image-mark or other design feature) in order to prevent the unauthorized copying of them.&nbsp;<i>This is, of course, what intellectual property law is already doing&nbsp;</i>... &nbsp;Our national trademark systems ... quite deliberately offer exclusive rights in status symbols &nbsp;...</blockquote>Beebe, 837-839) (emphasis added(.<br /><br />Due to this shift in how post-sale confusion is theorized, Sheff, as well as Rausitala and Sprigman, divide the post-sale confusion cases into different categories. Sheff refers to the classic version, where the perception of poor quality drives observers decision to forego plaintiff's product, as &nbsp;“bystander confusion." Sheff coins the phrase “status confusion" to refer to the alternative form of post-sale confusion, wherein loss of exclusivity and status drives observers decisions to forego purchase. (Sheff, 774) ("Status confusion is the legal theory that most often serves to justify liability against the manufacturers of knockoff luxury branded goods, even though the purchasers of those goods know full well what they are buying.").<br /><br />Despite the changed terminology, however, all of these cases share in common that the point of confusion is "post-sale," rather than point-of-sale. The risk is that observers, bystanders, third-parties, etc., are the people who are confused, not purchasers. The&nbsp;<i>ultimate</i>&nbsp;harm in all cases is theoretically the same: that plaintiff will lose sales, whether as a result of a perception of low quality or as a result of a perception of lesser exclusivity. <br /><br />There is one point on which (I hope) we can all agree: if there is&nbsp;<i>no&nbsp;confusion at all,&nbsp;</i>whether at the point-of-sale or by observers post-sale, this should not be actionable trademark infringement. At most, this is potentially actionable dilution. This court's statement in&nbsp;<i>Ferrari S.P.A. Esercizio v. Roberts,&nbsp;</i>as described by Professor McKenna,&nbsp;would seem therefore seem to be error in a trademark infringement case:<br /><blockquote class="tr_bq">[i]f the country is populated with hundreds, if not thousands, of replicas of rare, distinct, and unique vintage cars, obviously they are no longer unique.&nbsp;<i><b>Even if a person seeing one of these replicas driving down the road is not confused</b></i>, Ferrari’s exclusive association with this design has been&nbsp;<b><i>diluted</i></b>&nbsp;and eroded.</blockquote><div style="margin: 0px;">(McKenna, 131) (quoting&nbsp;<i>Ferrari S.P.A. Esercizio v. McBurnie</i>,&nbsp;<span style="font-family: &quot;timesten&quot;;">944 F.2d 1235, 1245 (6th Cir. 1991) (quoting&nbsp;</span>11 U.S.P.Q.2d 1843, 1848 (S.D. Cal. 1989)) (emphasis added).</div><br />This statement, made&nbsp;<a href="https://en.wikipedia.org/wiki/Federal_Trademark_Dilution_Act">before a federal cause of action for dilution went into effect in 199</a>6, would presumably be error today. The case would instead be treated under the dilution framework in&nbsp;<a href="https://www.law.cornell.edu/uscode/text/15/1125">Section 43(c)</a>, which accepts that the viewers of the Ferrari might not be confused and instead asks whether the distinctiveness of Ferrari's mark would be impaired or its reputation tarnished.&nbsp;(The dissent made this point in the actual case, complaining that the majority had "misconstrue[d] the scope of protection afforded by the Lanham Act by misapplying the 'likelihood of confusion' test and reading an anti-dilution provision into the language of section 43(a)."&nbsp;944 F.2d 1235, 1248 (6th Cir. 1991) (dissent).)<br /><br />The more difficult case is where plaintiff is not bringing a dilution claim or conceding absence of confusion, but is instead trying to win on an exceptionally weak "post-sale confusion" case. &nbsp;Accordingly, it is immensely important to determine precisely what plaintiff must prove to demonstrate post-sale confusion. &nbsp;How much confusion, and how much actual harm for that matter, is required? This is precisely what Raustiala and Sprigman seek to determine in their new piece.<br /><br /><i><b>The Critique: What's the Harm?</b></i><br /><br />Raustiala and Sprigman's take, in short, is that while post-sale confusion may be real in some cases, it probably usually is not. In many instances, they write, "post-sale confusion is either unlikely to exist or, even if it does exist among some observers of the goods at issue, it is unlikely to harm either consumers or mark owners." (Raustiala and Sprigman, 3). To use the fake&nbsp;<i>Ferrari</i> case above, no one driving down the road seeing the Ferrari replicas is confused; and even if they are confused, they do not draw any negative perceptions that would lead them to buy fewer real Ferraris. <br /><br />The problem is as follows. As said, post-sale confusion focuses on&nbsp;observers, rather than purchasers. The alleged harm is&nbsp;not&nbsp;that these third party observers will mistakenly buy defendant's product. If that were so, then this would just be a point-of-sale confusion theory. Rather, the alleged harm is that third party bystanders will&nbsp;<i>not</i>&nbsp;buy plaintiff's products. But for this harm to occur, a long chain of events is necessary. (Raustiala and Sprigman, 8).<br /><br />Sheff's article provides a comprehensive list of the five (5) necessary steps, copied verbatim below:<br /><ol><li>The defendant sells its product—which incorporates some feature or combination of features that resembles a protectable mark of the plaintiff—to an admittedly non-confused consumer;</li><li>The consumer uses the product in view of a potential purchaser of the plaintiff’s product;</li><li>The potential purchaser is confused as to the source of the observed product, misidentifying it as having originated with the plaintiff;</li><li>The potential purchaser, observing the defendant’s product in use, makes some negative evaluation about the qualities of the observed product, mistakenly ascribing that evaluation to the plaintiff’s products;</li><li>Under this mistaken understanding of the qualities of the plaintiff’s products, the potential purchaser refrains from future purchases of the plaintiff’s products, and potentially recommends that others do likewise.</li></ol>(<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798867">Sheff</a>, 779).<br /><br /><i>If</i>&nbsp;steps 1-4 occur, then the third-party observer is <i>almost</i>&nbsp;in the position of the consumer in the point-of-sale situation. (e.g. observer has seen a fake Ferrari on the road and observed that it is slow and clunky). &nbsp;The observer is now in the marketplace with misinformation about the qualities of the plaintiff’s product, which <i>might</i> lead to the harm depicted in step 5, where the observer-come-potential-purchaser "refrains from future purchases of the plaintiff’s products, and potentially recommends that others do likewise." (e.g. "I saw a Ferrari on the road the other day, and it was crap. Don't buy it!")<br /><br />It might theoretically be feasible for plaintiffs to prove this series of steps by at least a preponderance of the evidence. But courts in trademark infringement cases do not ask plaintiffs to do so. Instead, they typically make only one evidentiary finding: "likelihood of confusion." Regardless of whether plaintiff's case is based on point-of-sale confusion or post-sale confusion theory, courts consider a variety of factors to determine whether there is statutory likelihood of confusion, including similarity of the marks, similarity of the products on which they appear, and whether there is any evidence of actual confusion in the marketplace, such as surveys of consumers stating they are confused in real-world situations. Courts have accepted very low findings of actual confusion as being sufficient under the law. &nbsp;<i><a href="https://scholar.google.com/scholar_case?case=15636134539612328219&amp;q=quality+inns+mcdonalds&amp;hl=en&amp;as_sdt=6,36">Quality Inns Intern., Inc. v. McDonald's Corp</a></i>., 695 F. Supp. 198, 219 (D. Ct. D. Maryland 1988) ("Even the 16.3 percent is an appreciable number that cannot be dismissed.").<br /><br />When the theory is&nbsp;<i>point-of-sale</i>&nbsp;confusion, even seemingly minimal findings &nbsp;of consumer confusion can be significant. If 16% of people think defendant's product originates from plaintiff, it is not too much of a leap to infer that a mistaken purchase will happen soon if it has not already. For <i>post-sale </i>confusion, however, even if plaintiff shows a likelihood of confusion on all the basic criteria<span style="font-family: &quot;verdana&quot; , &quot;helvetica neue&quot; , &quot;helvetica&quot; , &quot;arial&quot; , sans-serif;"><span style="background-color: white;">,&nbsp;</span></span>the alleged harm is not necessarily present or imminent in&nbsp;any single case. Steps 1-5, above, still have to occur.<br /><br />For instance, if Ferrari submits a survey showing that 16% of drivers who see the fake Ferraris driving on the road believe they are the real thing, this still does not demonstrate that they have gleaned any false perception about Ferrari's quality. or even about Ferrari's exclusivity and status in the car marketplace. The survey also says nothing about whether this perception would lead observers to forego buying Ferraris in future. &nbsp;In fact, the result might be the opposite: observers may see the fake Ferraris and desire a real one as a result. As Raustiala and Sprigman put it, "under certain circumstances confusion can actually be beneficial. A confused observer ... may be spurred by her observation of the knockoff to buy the senior mark holder’s good."(Raustiala and Sprigman, 20). It's like free advertising.<br /><br /><div><i><b>Is "Materiality" the Answer?</b></i></div><div><br /></div>To summarize, trademark infringement cases that are based on a post-sale confusion theory, from fake Rolexes to fake Ferraris, create what is ultimately a problem of proof. The linkage between the defendant's acts and legally cognizable trademark confusion, let alone actual trademark harm, is far more attenuated than in a point-of-sale confusion case. &nbsp;But courts have not responded to this problem. Instead, they seem willing to find for plaintiffs in post-sale confusion cases, even with quite minimal findings of confusion.<br /><br />What is the solution to this problem? Sheff recommends placing a higher burden on plaintiff's to bring evidence appropriate to their cause of action. Courts might<br /><blockquote class="tr_bq">put the burden on the bystander confusion plaintiff to prove that its actual or potential customers are likely to be in a position to observe the defendant’s goods in use by others, and moreover that they are the type of consumers whose purchasing behaviors are likely to be influenced by such observations (as opposed to, for example, advertising, point-of-sale inspection, or third-party reviews).</blockquote>(Sheff, 784).<br /><br />A less extreme variation of this option, which I think is worth considering, is to withhold an injunction in post-sale confusion cases. Courts could refuse to grant an injunction until plaintiffs show proof of imminent harm. Withholding of remedies prior to proof of harm has precedent in trademark law: many circuits already use the so-called <a href="https://scholar.google.com/scholar_case?case=11486714890439330995&amp;q=dawn+donut+company+v+food+stores+inc&amp;hl=en&amp;as_sdt=6,36"><i>Dawn Donut</i>&nbsp;rule</a>&nbsp;to limit injunctive relief for cases where there is no evidence of actual harm, because plaintiff doesn't operate in defendant's geographic region yet. Even when plaintiff has a registered mark and wins at trial on likelihood of confusion, the court will decline to enjoin defendant if defendant is in a remote part of the country that plaintiff has no intent to enter. In the post-sale confusion context, courts could hold for plaintiff if there is a likelihood of confusion under the usual factors, but withhold injunctive relief&nbsp;<i>unless</i>&nbsp;plaintiff demonstrates that third-party observers will more likely than not see the infringing products and actually make erroneous inferences about them.<br /><br />Professors Sprigman and Raustiala take a more extreme route. They argue courts should place a new burden on the trademark plaintiff&nbsp;"to&nbsp;establish a clear connection to harm" to the mark holder. &nbsp;(Sprigman and Raustiala, 23). "[T]he sort of consumer confusion that should be actionable as trademark infringement is the sort that is <i>relevant to consumers’ purchase decisions</i>. &nbsp;(Sprigman and Raustiala, 4-5) (emphasis added). <br /><br />The upshot is that Sprigman and Raustiala join a growing rank of trademark scholars who want to introduce an express "materiality" requirement into trademark infringement claims. &nbsp;Those arguing for a materiality requirement include, to name a few,&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1823396">Rebecca Tushnet</a>, as well as&nbsp;Mark Lemley and McKenna, who proposed,&nbsp;in&nbsp;<i><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1407793">Irrelevant Confusion</a>,</i>&nbsp;that materiality be required&nbsp;with respect to trademark infringement claims that are based merely on contentions of&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1407793">sponsorship confusion</a>, rather than confusion regarding source or quality assurance.&nbsp;&nbsp;More generally, Lemley and McKenna propose in&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1604845&amp;download=yes" style="font-style: italic;">Owning Mark(et)s</a><i>&nbsp;</i>that there be a&nbsp;“trademark injury” requirement,<br /><blockquote class="tr_bq">akin to the “antitrust injury” requirement currently used to weed out undeserving antitrust plaintiffs: to sustain an infringement claim, <i>a plaintiff should have to demonstrate that the defendant’s conduct is likely to cause material confusion in the minds of consumers</i>, and allegations of other types of “harm” should be insufficient.</blockquote>(<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1604845&amp;download=yes" style="font-style: italic;">Lemley and McKenna</a>, 141) (emphasis added).<br /><div><br /></div>Materiality means, as a general matter, that defendant's actions are likely to actually affect a reasonable consumer's purchasing behavior.&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1823396">Professor Tushnet's article</a>, <i>Running the Gamut from from A to B: Federal Trademark and False Advertising</i>, explains how it works for false advertising claims. In that context, plaintiffs have to show, at minimum, that&nbsp;defendant made a false or misleading statement in a commercial advertisement; that the statement actually deceives or is likely to deceive a substantial segment of the advertisement’s audience; and that the statement relates to a subject that is&nbsp;<i>material to consumers' decision to purchase the goods</i>. (Tushnet, 1344-1345) (citing case law).<br /><br />At present, materiality is not required for trademark infringement claims as opposed to in false advertising claims. This means if Rolex sells watches that it falsely contends are "water resistant", a Lanham Act 43(a)(1)(B) false advertising plaintiff would have to show consumers care about this feature or obtain a presumption due to the nature of the false statement. In contrast, an infringement plaintiff suing a seller of fake Rolexes need not show any actual impact on consumer behavior. Trademark owners just have to show defendant's use creates a likelihood of confusion under the factors discussed above. They do not have to show consumers actually&nbsp;<i>care</i>&nbsp;about the subject of confusion (i.e. that Rolex is the source of the watch) enough to change their behavior.<br /><br />In Tushnet's view, materiality was, in a sense, always there, because "[i]nfringement was, by definition, material." (Tushnet, 1352). The materiality requirement was inherent in a trademark infringement claim when the claim was based on the argument that defendant was selling an infringing good bearing a roughly identical mark, in the same market, at a roughly similar price. "Now," she writes, "a likelihood of confusion about source, sponsorship, affiliation, or distant relationship between a plaintiff and a defendant regularly results in injunctive relief" even though there is no evidence consumers "care one whit" about defendant's representation of a connection to plaintiff. (Tushnet, 1352).<br /><br />Notwithstanding Tushnet's point, requiring plaintiffs to affirmatively prove materiality in a trademark infringement lawsuit is a controversial proposal. The Lanham Act has not historically been read to expressly require materiality for trademark infringement under Sections 32(a) and 43(a)(1)(A). As Professor Tushnet notes, with some exceptions, "[o]nly occasionally do traces of materiality resurface in trademark cases." (Tushnet, 1356-1357).<br /><br />If materiality were required in plaintiff's prima facie case, I think this would substantially alter case outcomes. Major trademark plaintiffs like Starbucks might win a lot fewer cases or choose not to bring them in the first place. In litigation against a pop-up coffee shop called <a href="https://www.nbclosangeles.com/news/local/Dumb-Starbucks-Nathan-Fielder-Los-Feliz-Comedy-Central-244804431.html">Dumb Starbucks</a>, for instance, Starbucks would have to show consumers are likely to purchase defendant's coffee because they think it is Starbucks, versus because they think it is a liquid substance that contains caffeine.<br /><br />I also question how this would work in the post-sale confusion context, in particular. I presume the materiality requirement would be instituted in a similar way as in false advertising cases. There, the materiality prong asks whether defendant's false statement relates to a feature consumers care enough about to affect their decision to purchase the good. This requirement could be imported with relative ease into infringement analysis under a point-of-sale confusion theory. The chart below illustrates how this would work in the false advertising and point-of-sale infringement context, respectively, for a case involving a Rolex watch.<br /><br /><table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; color: black;"><tbody><tr><td style="border: 1pt solid windowtext; padding: 0in 5.4pt; width: 155.8pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">Type of Action<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">False Claim<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">Materiality<o:p></o:p></div></td></tr><tr><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 155.8pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">False advertising, Lanham Act § 43(a)(1)(B)<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">“Rolex® is water-resistant”<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">Do consumers care enough about whether the watch is water-resistant to affect their decision to purchase?<o:p></o:p></div></td></tr><tr><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 155.8pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">Trademark infringement under a point-of-sale confusion theory, Lanham Act § 32(a) or § 43(a)(1)(A)<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">“Rolex® is the source of this watch”<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0.0001pt;">Do consumers care enough about whether the watch is a real Rolex® to change their decision to purchase?<o:p></o:p></div></td></tr></tbody></table><br />On Sprigman and Raustiala's view, when plaintiff argues defendant's fake Rolex sales infringe on a post-sale confusion theory, plaintiff would also have to prove "materiality." But what precisely would the post-sale confusion plaintiff have to show? &nbsp;That observers care enough about the Rolex brand to alter a subsequent purchase decision? That&nbsp;observers&nbsp;perceive quality problems that are significant enough to alter a subsequent purchase decision? &nbsp;Would it be sufficient for plaintiff to prove that observers perceive a loss of exclusivity due to the presence of numerous knock-offs? Would plaintiff further have to show that observers accordingly might realistically choose not to buy real Rolex watches? &nbsp;This seems a nearly impossible evidentiary burden. The modified chart below spells out some of these possibilities (drawing again on Sheff's steps 1-5 quoted above).<br /><br /><table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; color: black;"><tbody><tr><td style="border: 1pt solid windowtext; padding: 0in 5.4pt; width: 155.8pt;" valign="top" width="208"><div class="MsoNormal">Type of Action<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal">False Claim<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal">Materiality<o:p></o:p></div></td></tr><tr><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 155.8pt;" valign="top" width="208"><div class="MsoNormal"><span style="font-family: &quot;calibri&quot; , sans-serif;">Trademark infringement under a post-sale confusion theory, Lanham Act § 32(a) or § 43(a)(1)(A)</span></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoNormal">“Rolex® is the source of this watch”<o:p></o:p></div></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 155.85pt;" valign="top" width="208"><div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: &quot;symbol&quot;; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: &quot;times new roman&quot;; font-size: 7pt; font-stretch: normal; line-height: normal;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</span></span><!--[endif]-->Do&nbsp;<span style="text-indent: 0px;">observers</span>&nbsp;see others wearing the fake Rolex® watch?<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: &quot;symbol&quot;; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: &quot;times new roman&quot;; font-size: 7pt; font-stretch: normal; line-height: normal;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</span></span><!--[endif]-->Do&nbsp;<span style="text-indent: 0px;">observers</span>&nbsp;make a wrong inference about the source?<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: &quot;symbol&quot;; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: &quot;times new roman&quot;; font-size: 7pt; font-stretch: normal; line-height: normal;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</span></span><!--[endif]-->Do&nbsp;<span style="text-indent: 0px;">observers</span>&nbsp;recognize Rolex® as a known brand?<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: &quot;symbol&quot;; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: &quot;times new roman&quot;; font-size: 7pt; font-stretch: normal; line-height: normal;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</span></span><!--[endif]-->Do&nbsp;<span style="text-indent: 0px;">observers</span>&nbsp;care about whether the watch is a real Rolex® enough to affect their decision to purchase a real Rolex®?<o:p></o:p></div><div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: &quot;symbol&quot;; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: &quot;times new roman&quot;; font-size: 7pt; font-stretch: normal; line-height: normal;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</span></span><!--[endif]-->Do&nbsp;<span style="text-indent: 0px;">observers</span>&nbsp;see differences in quality, or status, that affect their decision to purchase a real Rolex®?&nbsp;<o:p></o:p></div></td></tr></tbody></table><br />Also, why wouldn't we <i>presume </i>impact on consumer behavior given that the seller of the fake Rolex has made a "literally false" statement by selling watches that are falsely labeled as Rolex? This is what courts do in at least some circuits in the false advertising context. <i>Pizza Hut, Inc. v. Papa John's Intern., Inc</i>., 227 F. 3d 489, 497 (5th Cir. 2000) ("With respect to materiality, when the statements of fact at issue are shown to be literally false, the plaintiff need not introduce evidence on the issue of the impact the statements had on consumers."). &nbsp;Importing this law into the post-sale confusion context, courts may well presume that, since defendant sold watches bearing the literally falsely statement that "Rolex® is the source of this watch," plaintiff should not have to prove actual impact on consumer behavior. Perhaps this is what courts are effectively doing already. <br /><br />As a more general matter, while I see promise in the idea of importing materiality into trademark infringement claims, I remain uncertain about what exactly critics of alternative confusion theories would like to happen, beyond importing some semblance of a "materiality" requirement from the false advertising context into trademark infringement.<br /><br /><div style="text-align: center;">***</div><br />All commentary aside, I learned a tremendous amount from reading Raustiala and Sprigman's article, and all of the insightful and engaging scholarship cited. I enhanced my understanding of post-sale confusion tremendously, and highly recommend that others working in this area read these articles.<br /><div><br /></div><div><br /></div></div>Camilla Alexandra Hrdyhttps://plus.google.com/104611102227348345869noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-42444467369238651032018-11-10T12:44:00.000-05:002018-11-10T12:44:26.805-05:00Samantha Zyontz on CRISPR AdoptionPierre Azoulay's recent <a href="https://twitter.com/pierre_azoulay/status/1057963330646786050">Twitter thread</a> on students from the MIT Sloan TIES PhD program who are currently on the market alerted me to <a href="http://szyontz.mit.edu/current-research">Sam Zyontz's interesting work</a> on the CRISPR genome editing tool. CRISPR has captivated the patent world due to the fight between the University of California and MIT's Broad Institute over key patent rights—Jake Sherkow <a href="https://writtendescription.blogspot.com/2018/05/jake-sherkow-guest-post-what-crispr.html">summarized the dispute</a> in May and <a href="https://www.statnews.com/2018/09/11/crispr-patent-decision-science/">reflected</a> on the Federal Circuit's decision in September. But CRISPR is of course also interesting to innovation scholars due to the revolutionary nature of the technology itself (this is why the patent rights were worth fighting for), which has the potential to applied to a tremendous variety of applications. Using data on researchers who attempt to experiment with CRISPR and the smaller number who succeed in publishing new findings using the technology, Zyontz has produced some fascinating findings on hurdles to technological diffusion.<br /><br />Zyontz's work was made possible because of the nonprofit global plasmid repository Addgene, which received the basic biological tools for CRISPR from researchers at the University of California and the Broad Institute in 2012 and 2013. Since then, researchers have had <a href="https://www.addgene.org/crispr/">easy access</a> to CRISPR tools for the low cost of $65 per plasmid.<br /><br /><a name='more'></a>For her 2016 Master's thesis, <i><a href="http://dspace.mit.edu/handle/1721.1/105073">Technological Breakthroughs, Entry, and the Direction of Scientific Progress: Evidence from CRISPR/Cas9</a></i>, Zyontz did not yet have information about the identities of the ordering labs, but she combined data about what kinds of plasmids were being ordered from Addgene (through 2014) with CRISPR-related publications in Elsevier's <a href="https://www.scopus.com/search/form.uri?display=basic">Scopus</a> database (through 2015). Her main finding is that the increase in mammalian genetic engineering research was primarily due to new researchers attracted to the genetic engineering field rather than to increased productivity of researchers who had been working on mammalian models or a shift by researchers who had previously published on bacterial genetic engineering.<br /><br />In a subsequent paper with Neil Thompson, <i><a href="https://ssrn.com/abstract=3073227">Who Tries (and Who Succeeds) in Staying at the Forefront of Science: Evidence from the DNA-Editing Technology, CRISPR</a></i> (posted in 2017), Zyontz was able to match individual labs that requested CRISPR plasmids with their subsequent publications, allowing a more direct examination of which researchers succeeded in adopting the technology (what Thompson and Zyontz call "conversion"). Overall, they find that of the 164,993 US authors who publish in genetic engineering, 1.81% ordered CRISPR tools in 2012-14, with an average success rate (subsequent CRISPR publication) of 11.30%. Interestingly, once they control for researcher quality, there is no location effect on experimenting with CRISPR—researchers in Cambridge and Berkeley were not more likely than similar researchers in other locations to order CRISPR tools. But location had a large effect on successful conversion into a publication: researchers were more successful with mammalian CRISPR use if they were located in Cambridge (where CRISPR was first successful with mammalian cells).<br /><br />Zyontz's job talk paper, <i><a href="http://szyontz.mit.edu/current-research">Running with (CRISPR) Scissors: Tool Adoption and Team Assembly</a></i>, only has the abstract currently available online, though she quickly replied to my email asking about a draft. She digs deeper into these barriers to CRISPR adoption by quantifying the role of "external tool specialists" who aid in adopting and applying the technology. She takes advantage of natural differences in the difficulty of using CRISPR in the different areas. Here's how she summarized her results in an email:<br /><blockquote class="tr_bq">In tool adoption cases, like CRISPR, where complementary know-how is needed, external tool specialists can provide that know-how across applications. External tool specialists are scientists that know CRISPR, but not necessarily the application area. But when such tool specialists are scarce and there is a rush to adopt the tool, teams have a choice of how to use external specialists. Either external specialists join teams that go after the easiest applications to get the tool to more areas faster (or just to publish more papers in general) or they join teams that go after the most complex problems where their human capital is more necessary. I find that external tool specialists contribute more to early adopter teams that provide innovations in difficult application areas, and not the low hanging fruit. In the easier applications, teams in the application area are more inclined to learn how to use CRISPR themselves for new innovations. Interestingly, this effect does not diminish right away. External tool specialists are still used for subsequent innovations in more difficult applications.</blockquote>Legal scholars have discussed both barriers to accessing physical research tools and the importance of human capital in facilitating tacit knowledge transfer, but as with many issues of innovation law, there has been far too little evidence to inform these discussions. It is thus exciting to see this detailed exploration of knowledge diffusion in a particular technological field.Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-57854978954237936532018-11-06T10:52:00.000-05:002018-11-06T10:52:32.886-05:00The Uneasy Case for Ariosa Diagnostics v. IlluminaThe Supreme Court's request for views from the Solicitor General in Ariosa Diagnostics v. Illumina has renewed interest in this nerdy issue of patent prior art. I appear to be in a very small minority that believes that Federal Circuit's rule on this may be right (or at least is not obviously wrong), so I thought I would discuss the issue.<br /><br />Let's start with the (pre-AIA) statute. 35 U.S.C. 102(e) says that one type of prior art may be where:<br /><blockquote class="tr_bq">the invention was described in ... a patent granted on an application for patent by another filed in the United States before the invention by the applicant for patent...</blockquote>This is a pretty old rule, dating back to the <i><a href="https://supreme.justia.com/cases/federal/us/270/390/" target="_blank">Alexander Milburn</a></i> case. The gist of the rule is that delays in the patent office should not deprive references of being prior art. Thus, even though the patent application is "secret" until published, we backdate the reference to the date of filing once the patent is granted (or the application published, which is covered in a subsection I do not reproduce above).<br /><br />The issue in Ariosa v. Illumina is what to do with provisional patent applications. For the reference at issue, the prior art patent first relied on a provisional patent application, which is never published but becomes publicly available if a patent that relies on it is granted. Later, a regular patent application was filed and eventually issued. There is a dispute about whether the invention was even described in the provisional, but we'll assume that it was. However, the PTAB ruled (and the Fed. Cir. affirmed) that because the <b><i>issued</i></b> patent claims were not supported by the provisional patent disclosure, then the reference could not be backdated to the filing of the provisional patent, even if the invention was described in the final patent.<br /><br />This is where the objections come in. If the patent relies on the filing date of the provisional patent (and incorporates it by reference), then surely it is <i>described</i> as of the provisional patent date and should be prior art. We are, after all, living in a first to invent world and it is unfair that the first inventor (in the provisional patent) should not count as prior art.<br /><br />Let's start with <i>Alexander Milburn</i>. I love that case. I have assigned it to my students. I think it explains this statute well. But it is not controlling. It was an interpretation of the statute at that time. We have a later adopted statute that defines what is and is not prior art, and <i>Alexander Milburn</i> does not speak to the facts of the Ariosa dispute because there were no provisional patents at that time. This is not like, say, on sale (Section 102(b)) in <i>Helsinn</i> in which that statute remained unchanged and the meaning of the words remained unchanged. There were no provisional patents when <i>Alexander Milburn</i> was granted, and thus it has little to say; the statute was intended to deal with that (and even that has a difficult time).<br /><br />As a corollary to this analysis, I want to put the rest that there is a problem with the Federal Circuit's rule because it rewards the second inventor. I would bet dollars to donuts that many people arguing this scoffed at complaints that the AIA's first to file rule was unconstitutional because it rewarded second inventors. Both arguments fail for the same reason - the patent system has a long history of allowing the second invention to issue as a patent under certain circumstances. Indeed, even the current version of 102(e) disallows many early foreign patent filings, even though such filings are clearly the first invention. Once again, we have to look at the statute.<br /><br />So, let's look at the statute: "The invention is described in" - critics focus on this, saying it makes no sense to look at a patent's claims. We only care about whether the invention was described. Fair enough - I agree.<br /><br />But what about the next part: "a patent granted on an application for patent by another filed in the United States before the invention." Looking at this in pieces, we see a few requirements. First, the description must be <i>in the patent</i>, not the provisional application. Thus, looking at what the provisional patent says should be irrelevant...for this piece.<br /><br />Second, that description must be in a patent "granted on an application for patent...filed...before." This is where the action is. What does it mean for a patent to be granted on an application for patent filed? For a provisional application, means that the patent must satisfy Section 119(e). It must be filed within one year, and the final patent claim must be supported by the written description of the provisional patent. It is as simple as that - the plain words of the statute dictate the Federal Circuit's rule.<br /><br />There is a policy benefit to this reading. I think that patentee's can take advantage of the jump from provisional to final patent disclosures, adding new matter while always claiming priority back to the provisional. The provisional patent is not easily obtained, and it takes work to parse out which claims are actually entitled to the earlier filing date. Enforcing the rules on prior art better incentivizes complete provisional patent disclosures.<br /><br />Then why do I say this is an uneasy case? Well, did I mention that I like <i>Alexander Milburn</i>? The policy it states, that delay in the patent office shouldn't affect prior art can easily be applied here. So long as the description is in the provisional patent, and so long as that provisional patent is eventually publicly accessible, then the goal, even if not the strict language, of the statute is met.<br /><br />Also, my reading leads to a potentially unhappy result. A party could file a provisional that supports invention A, and then a year later file a patent that claims invention A but describes invention B. The patent could then be asserted against B while relying on the earlier filing date of A, <i>even though B was never described in the provisional as of the earlier date</i>. Similarly, a provisional patent could describe B, and B could then be <i>removed</i> from the final patent application, and the patent would not be prior art because B was not described in the patent, even though B had been described in the earlier, now publicly accessible provisional application.<br /><br />I don't know where I land on this - as readers of this blog know, I tend to be a textualist. Sometimes the Court has agreed with that, but sometimes (see patentable subject matter and patent venue) it does not.Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-52831621617124571512018-11-02T00:33:00.000-04:002019-01-02T13:35:35.878-05:00How will the USPTO study gaps in patenting by women, minorities, and veterans under the new SUCCESS Act?On Wednesday, President Trump <a href="https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-signs-h-r-6758-h-r-6896-law/">signed</a> H.R. 6758, the <a href="https://www.congress.gov/bill/115th-congress/house-bill/6758/text">Study of Underrepresented Classes Chasing Engineering and Science Success Act of 2018 (SUCCESS Act)</a>. It states that the "sense of Congress" is that the United States should "close the gap in the number of patents applied for and obtained by women and minorities to harness the maximum innovative potential and continue to promote United States leadership in the global economy."<br /><br />The USPTO has been charged with conducting a study that "(1) identifies publicly available data on the number of patents annually applied for and obtained by, and the benefits of increasing the number of patents applied for and obtained by women, minorities, and veterans and small businesses owned by women, minorities, and veterans; and (2) provides legislative recommendations for how to— (A) promote the participation of women, minorities, and veterans in entrepreneurship activities; and (B) increase the number of women, minorities, and veterans who apply for and obtain patents." Congress wants to receive a report on the study results within a year.<br /><br />There is already great empirical work on gender and racial gaps in patenting, including the <a href="http://www.equality-of-opportunity.org/assets/documents/inventors_paper.pdf">"lost Einsteins" work</a> by Alex Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, and John Van Reenen and Colleen Chien's <i><a href="https://ssrn.com/abstract=3157983">Inequality, Innovation, and Patents</a></i>. The USPTO could expand on this work, including by adding to its excellent collection of <a href="https://www.uspto.gov/learning-and-resources/ip-policy/economic-research/research-datasets">research datasets</a>. Accurately quantifying the net benefits of increasing patenting by certain groups will be more difficult—especially if the agency follows <a href="https://writtendescription.blogspot.com/2016/04/jonathan-masur-on-improving-cost.html">Jonathan Masur's suggestions</a> for improving its economic analysis—though the second half of the study doesn't depend on getting this number right.<br /><br />The second half of the study—recommending how to promote entrepreneurship and patenting by women, minorities, and veterans—will require the USPTO to master a different strand of the empirical literature. I've spent some time digging into this work for my upcoming discussion group on <a href="https://law.stanford.edu/courses/discussion-innovation-and-inequality/">Innovation and Inequality</a>, and suffice it to say that there is robust debate about why certain groups are underrepresented in science, engineering, entrepreneurship, and patenting. (Though I haven't seen anything focused on veterans.) There's also increasing academic interest in these issues. For example, at the new <a href="https://cardozo.yu.edu/programs-centers/cardozo-google-patent-diversity-project">Cardozo-Google Project for Patent Diversity</a>, the goal is "to increase the number of U.S. patents issued to women and minorities," mostly by matching resource-constrained inventors with pro bono patent attorneys.<br /><br />The USPTO is well positioned to bring new evidence to this debate, and I hope it will take this study as an opportunity to test some proposals in rigorous ways through actual field experiments. The agency has shown a wonderful willingness to experiment with pilot programs, but it could learn far more by, for example, randomly selecting only a subset of those opting in to the pilot and comparing their outcomes to those who opted in but weren't selected. (For a review of the literature on learning through policy randomization and some potential applications in patent law, see Part II of my <i><a href="https://ssrn.com/abstract=2294774">Patent Experimentalism</a></i>.) Such experimentation could be useful even for small questions, such as whether acceleration certificates (like those used as <a href="https://www.uspto.gov/patent/initiatives/patents-humanity/learn-more">Patents for Humanity</a> prizes) are useful at increasing pro bono volunteer work among the patent bar.<br /><br />The SUCCESS Act seems like an exciting chance for the USPTO, and potentially for academics the agency collaborates with, so I look forward to seeing how they use this opportunity.Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-72086536729529396782018-10-30T09:49:00.000-04:002018-10-30T09:49:56.633-04:00Measuring the Role of Attorney Quality in PatentingIt stands to reason that better attorneys are better at turning patent applications into patents. Theoretically, better arguments about overcoming prior art, for example, will be more likely to lead to granted claims. But what about the quality of inventions? Maybe better patent attorneys just get better patent applications, so of course they have better success rates.<br /><br />Measuring this is hard, but Gaétan de Rassenfosse (Ecole Polytechnique Fédérale de Lausanne) and four co-authors from University of Melbourne and Swinburne University of Technology think they have found the answer. Examining 1.2 million granted and refused patent applications in the US, Europe (EPO), China, Japan, and South Korea, they think they have the answer. They have posted a draft on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3254958" target="_blank">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">Failure to obtain a patent weakens the market position and production chain of enterprises in patent-intensive technology domains. For such enterprises, finding ways to maximise the chance to obtain patent protection is a business imperative. Using information from patent applications filed in at least two of the five largest patent offices in the world between 2000 and 2006, we find that the ability to obtain patent protection depends not only on the quality of the invention but also on the quality of the patent attorney. In some cases, the latter is surprisingly more important than the former. We also find that having a high-quality patent attorney increases the chance of getting a patent in less codified technology areas such as software and ICT. </blockquote>They use a clever approach with their multi-country methodology to separate attorney quality from invention quality. By estimating grant rates across countries for the same inventions as well as for the same attorneys, they are able to estimate the marginal value added by the invention versus the attorney. For example, if different attorneys have differing results in two countries with the same invention, then attorney quality is likely at play. However, if the same attorney has differing results in two countries with the same invention, then invention quality is more likely at issue. Of course, this doesn't work with a couple of patents, but with more than one million patent applications, the estimates likely trend toward a reasonable measure of each type of quality unaffected by the other.<br /><br />Using this index of quality, they then estimate the effects of attorney and invention quality. They find that, as expected, invention quality matters. But they also find that attorney quality matters--sometimes a lot. More interesting, they find that attorney quality matters more where there is more wiggle room (my term, not theirs), such as in software (as opposed to chemistry). In other words, they find empirical evidence to support the intuition that attorneys who can mold claims to avoid rejections are more likely to wind up with issued patents.<br /><br />Now, the benefit isn't unbounded. Because grant rates are really high (like 85%), the marginal benefit is unlikely to be huge. One marginal estimate they make is that moving from the 10th percentile to the 90th percentile in quality increases the grant probability by 13 percentage points (e.g, from 79% to 92%). What this means is that invention quality is very important, because even the least successful attorneys are successful most of the time. Of course, this is a potential criticism, because if everything is granted, then how can we measure quality based on grant rates? The paper addresses this, arguing that there is a lot of variability, even within the same patent family. They also test on other measures of patent quality and find similar results.<br /><br />The authors also make other interesting findings: external counsel increase grant rates, attorney quality doesn't seem to have an effect on foreign v. local probabilities, and attorney quality is of less importance in PCT applications. There is a lot more to the paper - including effects in different offices, on different technologies and other great information. I found this to be a really interesting and useful read.<br /><br />Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-35715565004403915232018-10-23T08:53:00.001-04:002018-10-23T08:53:51.983-04:00Patents and the Administrative StateWhen Justice Gorsuch was confirmed to the Supreme Court, many commentators, well, commented that he was wary of administrative overreach. But it turns out he was really active in patent cases, writing opinions in all the patent cases he saw last term. Who knew he was so interested in patents? He does have some IP chops; his opinion in <a href="https://caselaw.findlaw.com/us-10th-circuit/1291978.html" target="_blank">Meshworks</a> remains one of my favorite copyright cases, not the least of which because it validates a legal <a href="https://www.computerlaw.com/Articles/The-Law-of-Virtual-Reality.shtml" target="_blank">argument</a> I made about virtual reality copyright some 25 years ago. I was able to cite that case in a recent book <a href="https://papers.ssrn.com/abstract=3051871" target="_blank">chapter</a> on the same subject.<br /><br />But it turns out that his interest in patents may be one and the same as his concern about the administrative state. We suspected as much with Oil States, but what about the others? To answer this, Daniel Kim and Jonathan Stroud (both of Unified Patents) have an article forthcoming in the Chicago-Kent Journal of Intellectual Property called <i>Administrative Oversight: Justice Gorsuch’s Patent Opinions, the PTAB, and Antagonism Toward the Administrative State</i>. A draft is posted on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3247984" target="_blank">SSRN</a>, and the abstract is here:<br /><blockquote class="tr_bq">In his first term, Justice Neil Gorsuch has made a surprisingly forceful impact on, of all things, patent law—and even more unlikely, the United States Patent and Trademark Office’s adjudicatory arm, the Patent Trial and Appeal Board. Was there any way to predict, from his 10th Circuit opinions below, that he would author opinions in all three patent cases in his first term? Was this attention the result of deeply submerged but long-felt opinions on patent law, or rather a result of his sharp distrust of administrative overreach? We analyze 10th Circuit and Supreme Court opinions authored by Justice Gorsuch, and conclude his unforeseen interest springs from his desire to limit agency power rather than from any particular concern with patents. Still, his opinions—intentionally or by happenstance—will reverberate through our patent law for years. </blockquote>This article is straightforward and illuminating. It begins with the justice's background and some comments on his writing style. It then examines his Tenth Circuit opinions in IP and tribal immunity (there are really not that many, which the authors attribute to the backwater location of the 10th Circuit devoid of any innovation, which I'm sure the folks in Denver will be happy to hear).<br /><br />What's interesting about the article is that its analysis of the cases is not about IP outcomes, but about methods and the administrative state. Returning to <i>Meshwerks</i>, for example, the authors focus primarily on how it traces the history and purpose of IP rather than the important holding that realistic renditions of physical objects lack creativity.<br /><br />This analysis bears fruit, though, because they show how these same methods and concerns about the administrative state drive Gorsuch's patent opinions, including those where he is dissenting or breaking from other conservative justices.<br /><br />I found this article an interesting and insightful read, and I thought it was especially well done given the authors' own admission that they do not agree with Justice Gorsuch's judicial perspective. In other words, this wasn't a fan piece, but instead really useful commentary about how judicial philosophy and concerns about the administrative state may be brought to bear on the IP system in unexpected ways.<br />Michael Rischhttps://plus.google.com/102337276950174856400noreply@blogger.com0tag:blogger.com,1999:blog-2977297931731346524.post-32880347211160052332018-10-19T11:15:00.003-04:002018-10-19T11:15:50.860-04:00What impact do government grants have on small tech firms?Most academic writing on direct government spending as an innovation policy tool focuses on how this mechanism compares with other policies rather than on the policy choices <i>within</i> the "direct spending" box. For example, in <i><a href="https://ssrn.com/abstract=2245691">Beyond the Patents–Prizes Debate</a></i>, Daniel Hemel and I considered a single category of "government grants—a category that includes direct spending on government research laboratories and grants to nongovernment researchers"—with a focus on the similarities among these direct spending mechanisms, and what makes them all different from the other tools in our four-box framework (R&amp;D tax incentives, patents, and inducement prizes).<br /><br />But we noted that there is variation within each policy box, and that in practice the boxes form a spectrum rather than discrete choices. And it is certainly worth diving within each of the four boxes of our framework from <i>Beyond</i> to dissect these policy tools. There is of course an extensive literature already on optimizing within the "patent" mechanism, but legal innovation scholars pay far less attention to the other boxes, including grants.<br /><br />Even if one focuses on the most typical grants to academic scientists, there is some interesting research on the effect of different ways of awarding this funding, such as <a href="http://gps.ucsd.edu/_files/faculty/graff-zivin/graff-zivin_publications_fall2011.pdf">this paper by Azoulay et al.</a> on NIH vs. HHMI grants. But the federal government also provides many other types of direct finding: in 2013, almost one-quarter of federal R&amp;D expenditures went to for-profit firms. How does the theory behind this substantial expenditure of taxpayer funding differ from that for academic research, and what impact does it have in practice?<br /><br />A <a href="https://ssrn.com/abstract=3054809">recent study from Aleksandar Giga, Andrea Belz, Richard Terrile, and Fernando Zapatero</a> at USC and NASA's Jet Propulsion Lab at Caltech provides some data on the Small Business Innovation Research (SBIR) program as administered by NASA. They find that compared with firms that do not receive these grants, "microfirms" (1-5 employees) with SBIR grants are twice as likely to produce patents and generate twice as many patents. They argue that this is unlikely to be due to a selection effect. They also find that the program does not show the same effect for larger firms, and they suggest that the size limitations for the program should be reconsidered.<br /><br />Giga et al.'s work focuses on just one corner of the extensive field of direct government science funding, but I hope legal scholars will incorporate empirical work like this to provide a richer understanding of this type of innovation policy.Lisa Ouellettehttps://plus.google.com/110365770808086196981noreply@blogger.com0